‫وما توفيقي إال باهلل‬

Supply Chain Management (SCM)

1 Logistics 2 Logistics 3
Suppliers Company Customers
Inbound Outbound

Global Network Integration of Demand and Supply Chains.

Dr. Attia Gomaa
Prof. & Consultant of Industrial Eng. & Project Management
Faculty of Engineering - Shoubra - Benha University &
ESS - American University in Cairo
Facebook Groups: 1) Supply Chain Management – Dr. Attia Gomaa
2) Supply Chain Management Tools

SCM February
Supply Chain Management Best Practice 2022
- Dr. Attia Gomaa - 2022 1
 Supply Chain Management (SCM)
Contents:
1) Logistic and Supply Chain Management
2) Current Situation Analysis & KPIs
3) Product Cost Analysis
4) Market Forecasting (Demand & Price)
5) Material Requirement Planning (MRP)
6) Inventory Control & ABC Analysis
7) Procurement & Logistic Planning
8) Operations Planning
9) Case Studies
10) Assignments & Test Exam
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 2
Rules of the Course:

This is an Open Discussion Course:

– Share Knowledge ‫– تبادل المعرفة‬

– Share Experiences ‫– تبادل الخبرات‬ Team Approach

– Share Best Practices ‫– تبادل التجارب الجيدة‬

– Share Questions ‫– تبادل األسئلة‬

Remember … You can’t do it alone!

Let us be a teamwork.
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 3
Chapter (1):
Logistic and Supply Chain Management
1 Logistics 2 Logistics 3
Suppliers Company Customers
Inbound Outbound

Supply Chain Logistics

‫سلسلة التوريد‬ ‫الخدمات اللوجستية‬
)‫(سلسلة اإلمداد‬ )‫(خدمات اإلمداد‬
Material Flow from Suppliers Material Movement & Storage
through Company to Customers. from location A to location B
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 4
In summary:
Supply Chain Management (SCM)
(Analysis, Planning, Control, Improvement)

Financial
Market

Master Plan
Materials
Operation

Integration Management to Optimize Material Flow.

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 5
Core Objectives of SCM:

Improve
Customer
Goal Satisfaction
Low Cost

Right In Right At Right At Right

Materials Quantity Time Cost

Objectives:
Delivery Inventory
Flexibility Lead Time
4 Rights Reliability Level
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 6
SCM Project: SCM Report Outline; for example
1) Overview:
SCM
• Company Overview
Project
• Product Mix
2) Analysis:
• Current Situation Analysis
• Business Targets (SMART Objectives)
3) Planning:
• Market Plan
Master Plan • Operation Plan
• Material Plan (MRP / Inventory Control)
• Procurement & Logistic Plan
• Budget Plan & Cost Analysis; … etc.
4) Control:
• Key Performance Indicators (KPIs)
Integration Management
5) Improvement:
to Optimize Material Flow. • Improvement Plans
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 7
Toyota SCM:

Toyota (2017): Integration Management

1) > 10,000,000 Vehicles /year
2) > 4000 Items
3) > 2000 Suppliers
4) > 600 Companies
5) > 2000 Distribution Centers
6) > 2000 Maintenance Centers
7) > 300,000 Employees
8) > 22.7 billion $ Net Profit Master Plan

• Global Network Integration of Demand and Supply Chains.

• Integration Management to Optimize Material Flow.
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 8
 Supply Chain; for example

Supply chain is a Global network used to deliver products

and services from raw materials to end customer.
Supply chain is a series of firms making products and services
available to consumers.
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 9
 What is Supply Chain Management (SCM)?
SCM is a systematic approach to integrate and optimize
the material flow from procurement through operation to market.

Suppliers Customers
Business Targets

3) Procurement 1) Market
2) Operation
5) Financial 4) Logistics 5 Core
Areas

• Global Network Integration of Demand and Supply Chains.

• Integration Management to Optimize Material Flow.
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 10
 What is Supply Chain Management (SCM)?
SCM is a systematic approach for design, planning,
execution, control and improvement the supply activities
to increase the customer satisfaction at low cost.

5 Pillars of SCM:
“System Thinking”
Approach
5) Improvement 2) Planning
1) Define /
Design
Supply Activities
3) Execution
4) Control

Customer is an integral part of SCM

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 11
Supply Chain Network Cost Analysis

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 12
Value Chain
X1  X2  X3  X4  X5  X6
Logistic X6
Cost
Distribution
Manufacturing
Cost X5
Cost

Logistic
Cost X4
Material BTC
Cost
X3
Logistic
Cost
X2
X1 BTB

Logistics Types:
BTB BTB: Business To Business
BTC: Business To Customer

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 13
 History of Operations Management / Supply Chain Management

Procurement Operation Market

Second tier First tier First tier Second tier
End
supplier supplier customer customer Customer

Supply side Production Demand side

management
Supply Distribution
management management
Materials
management
Logistics management (Movement & Storage of Materials)

SCM (Integration of Demand and Supply Chains)

(Transforming & movement of materials)
Information 1960s Production Management
flow 1970s Distribution Management & Supply Management
1980s Material Management (MRP, JIT, …)
Physical 1990s Logistics Management & Total Quality Management
flow 2000s Supply Chain Management

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 14
 Evolution of Supply Chain Management

1960s 1980s 1990s 2000s

Production Material Logistics Supply Chain
Management Management Management Management

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 15
4 Flows in SCM:

Procurement Operation Market

Information Information

Suppliers

Payments Company Payments

or Customer
or
Vendors or
Product
Materials Contractor
Client
or

Subcontractor
Reverse Reverse

SCM  Integration of Supply Chains

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 16
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 17
 SCM – Planning Strategy
Standard
Products
Make To Stock Make To Order MTS/MTO
(MTS) (MTO) (mixed / Hybrid)

Stable (Flexible) Reactive Flexible (Efficient) Reactive

Supply Chain Supply Chain Supply Chain

The sales order does The sales order drive MTO + Safety stock or
not drive the the production reorder level for final
production program program products

Production  Inventory  Distribution (P-I-D)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 18
SCM Integration:

Upstream Downstream
2nd Tier
Internal
Suppliers
1st Tier
Suppliers
2nd Tier Assembly/
Suppliers Manufacturing and Distribution
Retailers Customers
Packaging Centers
1st Tier
Suppliers
2nd Tier
Suppliers

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 19
SCM - Vertical Integration:
Tier 4 Core Suppliers -- - Suppliers

Tier 3 Australia Malaysia Raw

materials

USA China Components

Tier 2

Tier 1 Germany - USA Major

subassemblies

Manufacturer - XX Assembly
Egypt

Tier 1 USA Egypt Distribution

centers

Tier 2 -- - - -
Retail

Core Customers
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 20
SCM

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 21
SCOR MODEL
Supply Chain
Operations Reference

Procurement Operation Market

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 22
SCM System Thinking: Business Targets

Financial Logistics Customers

Suppliers
Material
Inventory Production Market
Procurement
Distribution
IT Center

Integration Management
(Integration of Demand and Supply Chains)

Business Plan Business Plan

(Master Plan) (Master Plan)
1. Market Forecasting
2. Market Plan
Material Operation Market --- 3. Production Plan
Plan Plan Plan Plans 4. Material Plan
5. Procurement Plan
6. Quality Plan
12% 24% 7. Financial Plan, … etc.
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 23
 SCM Team

Materials
Financial
Procurement

SCM
Logistics
Master Plan Team Leader

Operations Market

Distribution

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 24
SCM: Planning:
(7) Target
KPIs
Business Plan (Master Plan)
Business Customer
(6) Logistic Targets Needs
Plan

(4) (3) (2) (1)

Procurement Material Production Market
Plan Plan Plan Plan

(5) Financial Plan (Cash In / Cash Out Analysis)

(4)

(3)
Order Size

(2)

(1)

Time
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 25
 Control
KPIs (Key Performance Indicators)

KPIs √
Financial Inventory
Analysis Turn Over

Market Productivity
Analysis Analysis

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 26
 Management Information System (MIS)
(SCM Information System)
Integration Management

Customers
Logistics Management

Customer Relationship Management (CRM)

Enterprise Resource Management

(Production Management System)

Supplier Relationship Management (SRM)

Logistics Management

Suppliers
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 27
SCM System Thinking: Business Targets

Planning Control
Main Modules
(Main Plans) (Target KPIs  SMART)
(1) • Business Plan • Profit Ratio
Integration (Master Plan) • Value Added
Management • Budget Plan • Inventory Turnover
(2) • Market Plan • Sales Revenue
Market • Distribution Plan • Market Share
Management • Logistic Plan • Claim Ratio
(3) • Production Rate
• Process Plan
Process • Quality Rate
• Quality Plan
Management • Labor Productivity
(4) • Average Stock level
• Inventory Policy
Inventory • Inventory Days of Supply
• Material Plan
Management • Shortage Losses
(5) • Procurement Plan • Delivery Reliability
Procurement • Logistic Plan • Material Quality Rate
Management • Supplier Evaluation • Average Material Cost

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 28
 SCM System Master Plans
Business Targets
(SMART) SCM
Project
1- Market 2- Distribution
Information Information

Supply Chain 1. Summary (one page)

3- Product 4- Production
Information
Management 2. Business Overview
Information
(SCM) 3. Business Targets
4. Marketing Plan
5- Inventory 6- Cost
Information Information 5. Operation Plan
6. Material Plan
7. Procurement Plan
7- Supplier 8- Procurement
Information Information 8. Financial Plan
9. Logistic Plan
10. Control - KPIs
9- Logistic
…… 11.…… Others
Information
… Others
12.Conclusion

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 29
Brainstorming #1
Company:
Product Code:
Product Description:
Business Targets:

(9) (1)
SCM Plan Customer
(Master Plan) Needs
Product (2)
(8)
Target KPIs
or Market
Plan

(7)
Project (3)
Financial Operation
Plan Plan

(6) (5) (4)

Logistics Procurement Material
Plan Plan Plan

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 30
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 31
Chapter (2):
Current Situation Analysis
& Key Performance Indicators (KPIs)
(ISO 9001:2015 – Clause #9)

2022
2021
2020

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 32
 Supply Chain Management (SCM)
(Analysis, Planning, Control, Improvement)

Financial
Market

Master Plan
Materials
Operation

Integration Management to Optimize Material Flow.

(Right Materials, Right Quality, Right Quantity, Right Time, Right Cost, … etc.)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 33
 Current Situation Analysis
& Key Performance Indicators (KPIs)

Business Analysis

Financial …
Analysis …

Marketing
Materials
Analysis
Analysis

Operations
Analysis

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 34
 Current Situation Analysis
& Key Performance Indicators (KPIs)
Department Main Objectives; for example KPIs
• Improve Profit Ratio Profit
Ratio
Financial • Reduce Average Unit Cost Unit
• Cost
• Improve Market Share Market
Share
Marketing • Improve Sales Quantity Sales
• Quantity
• Improve Capacity Utilization Capacity
Utilization
Operations • Improve Production Quantity Production
• Quantity
• Improve Inventory Turnover Inventory
Turnover
Materials • Reduce Average Inventory Value Inventory
• Value

You can’t improve what you don’t measure

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 35
 Inventory Turnover Analysis
Inventory turnover measures the number of times on average
the inventory is sold during the period.
‫معدل دوران المخزون هو مؤشر لقياس كفاءة إدارة مخزون الشركة‬
)‫ويعكس مدي قدرة الشركة علي بيع منتجاتها (ميزة تنافسية‬

Core Objectives:

Improve
Inventory Low
Turnover Shortage
Losses

Stockout
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 36
 Types of Inventory

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 37
 Inventory Turnover Analysis
Single Item
• Inventory Turnover =
Annual Sales Quantity / Average Inventory Quantity

Single & Multi Items

• Inventory Turnover =
Annual Cost of Sales / Average Inventory Value

• In general, a higher number is better.

• Low number (compared with previous period or
competitors) suggests problem with stock control.
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 38
 Inventory Turnover Analysis
• Inventory Turnover =
Annual Cost of Sales / Average Inventory Value
• Inventory Weeks of Supply = No. of weeks / Inventory Turnover

• Annual Cost of Sales = Annual Sales Quantity * Unit Cost

• Average Inventory Value = Raw Material + WIP + Products
Average Inventory:
Week 1 + Week 2 + ….. + Week (n=52)
Number of Weeks
or Month 1 + Month 2 + ….. + Month (n=12)
Number of months
or ≈ ≈ (Open Inventory + End Inventory)/2
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 39
Example #1:
If the annual cost of sales is $24 million and
the average inventory is $6 million:

a) What is the inventory turnover?

b) What is the inventory weeks of supply?
c) What would be the reduction in inventory; if the target
inventory turnover is 6 turns.
Answer:
• Inventory Turnover = Cost of Sales / Average Inventory Value
= 24/6 = 4 turns/year
• Inventory Weeks of supply = No. of weeks / Inventory Turnover
= 52/4 = 13 weeks/turn

• Target Average Inventory Value = Cost of Sales / Inventory Turnover

= 24 / 6 = $ 4 million. (reduction from $6 to $4 million)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 40
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 41
 How to improve Inventory Turnover ?
Inventory
Inventory Turnover
Turnover =
Annual Average
Cost of Inventory
Sales Value

1) Improve Sales Quantity 1) Reduce Stock Quantity

2) Improve Customer Satisfaction 2) Better Material Plans
3) Accurate Demand Forecast 3) Better Inventory Control
4) Better Market Plans 4) Better Order Management
5) Better Price Policy 5) Better Operation plans

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 42
Case Study #1-A:

The following information for a car assembly plant in Egypt (2015):

• Annual Cost of Sales = 900,000,000 LE

• Average Inventory Value = 200,000,000 L.E.

Based on this information, calculate the following:

1) Inventory Turnover
2) Inventory Weeks of supply
3) What would be the reduction in inventory;
if the target inventory turnover is 6 turns.
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 43
Case Study #1-F:
The following information for a car assembly plant in Egypt (2015):
Sales & Market Information:
• Annual Sales Quantity = 9,000 Units/year
• Net Sales Revenue = 1,000,000,000 LE/year
• Annual Sales of the Market = 63,400 units/year
Operation Information:
• Annual Standard Capacity = 20,000 units / year
• Annual Production Capacity = 10,000 units / year
• Annual Production Cost = 1,000,000,000 LE/year
Inventory Information:
Types of Inventory Open End
Material Inventory Value ; LE 55,000,000 45,000,000
WIP Inventory Value ; LE 80,000,000 60,000,000
Product Inventory Value ; LE 75,000,000 85,000,000
Based on this information, discuss the following:
1) Profit Analysis (Industry Average 15% from cost)
2) Inventory Turnover Analysis (Industry Average 6 turns/year)
3) Capacity Utilization Analysis (Industry Average 70%)
4) Market Share Analysis (Industry Average 20%)
5) Objectives and Recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 44
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 45
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 46
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 47
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 48
 Objectives and Recommendations for the next period
Dep Target Objective Improvement Recommendations
Improve Profit Ratio 1) Reducing fixed cost
Financial

from 11% to ≥ 15% 2) Reducing overhead cost

Reduce Average Unit Cost 3) Reducing production cost
from 100,000 to ≤ 96,600 LE/unit 4) Improving financial position
Improve Market Share 1) Enhancing customer service
Marketing

from 14.2% to ≥ 20% 2) Creating competitive advantage

Improve Annual Sales Quantity 3) Creating new markets
from 9,000 to ≥ 14,000 unit/year 4) Developing the motivation program
Operations

Improve Capacity Utilization 1) Analyzing the product defects

from 50% to ≥ 70% 2) Improving working conditions
Improve Annual Production Quantity 3) Enhancing MRP system
from 10,000 to ≥ 14,000 unit/year 4) Updating maintenance programs

Improve Inventory Turnover 1) Improving Material Plans

Materials

from 4.5 to ≥ 6.0 turns/year 2) Improving Inventory Control

Reduce Average Inventory Value 3) Improving Order Management
from 200,000,000 to ≤ 150,000,000 LE 4) Improving Operation plans

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 49
Assignment: Business KPIs & Current Situation Analysis:
The following information for a car assembly plant in Egypt (2016):
Sales & Market Information:
• Annual Sales Quantity = 10,000 Units/year
• Net Sales Revenue = 1,100,000,000 LE/year
• Annual Sales of the Market = 70,000 units/year
Operation Information:
• Annual Standard Capacity = 20,000 units / year
• Annual Production Capacity = 11,000 units / year
• Annual Production Cost = 1,100,000,000 LE/year
Inventory Information:
Types of Inventory Open End
Material Inventory Value ; LE 45,000,000 40,000,000
WIP Inventory Value ; LE 60,000,000 50,000,000
Product Inventory Value ; LE 85,000,000 75,000,000

Based on this information, discuss the following:

1) Profit Analysis (Industry Average 15% from cost)
2) Inventory Turnover Analysis (Industry Average 6 turns/year)
3) Capacity Utilization Analysis (Industry Average 70%)
4) Market Share Analysis (Industry Average 20%)
5) Objectives and Recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 50
Case Study #F:
The following information for a steel company in Egypt (2020):

Cost Information:
• Annual Material Cost = 500,000,000 LE/year
• Annual Labor Cost = 100,000,000 LE/year
• Annual Machine Cost = 200,000,000 LE/year
• Technical Overhead = 150,000,000 LE/year
• Office Overhead = 50,000,000 LE/year

Sales & Market Information:

• Annual Sales Quantity = 100,000 ton/year
• Net Sales Revenue = 1,100,000,000 LE/year
• Annual Sales of the Market = 700,000 ton/year

Operation Information:
• Annual Standard Capacity = 200,000 ton / year
• Annual Production Quantity = 120,000 ton / year
• Annual Defect Quantity = 10,000 ton / year

Inventory Information:
Types of Inventory Open End
Material Inventory Value ; LE 50,000,000 40,000,000
WIP Inventory Value ; LE 60,000,000 50,000,000
Product Inventory Value ; LE 80,000,000 70,000,000
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 51
Based on this information, discuss the following:

a) Cost Breakdown Structure & Cost Indicators (Chapter #3)

b) Profit Analysis (Industry Average 15% from cost)

c) Inventory Turnover Analysis (Industry Average 6 turns/year)

d) Capacity Utilization Analysis (Industry Average 70%)

e) Market Share Analysis (Industry Average 20%)

f) Objectives and Recommendations for the next period

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 52
Cost Breakdown Structure
Unit Price
• Unit Level 11,000 LE/ton

Unit Cost Unit Profit

9,091 (100%) Base 1,909 (21%)

Direct Cost Overhead

Technical
7,273 (80%) 1,818 (20%)

Materials Labour Machine Technical Office

Cost Cost Cost Overhead Overhead
4,545 (50 %) 909 (9 %) 1,818 (19.2%) 1,364 (15%) 455 (5%)

Critical Factory Cost

Resources 8,636 (95%)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 53
Cost KPIs Analysis:
From cost breakdown structure
Main Indicators:
- Profit = 21 % from cost

- Value Added Factor = Price / Mat. Cost = 11,000/4,545 = 2.4

(1 Material : 2.4 Price)  Material Productivity

- Margin Factor = Price / Direct Cost =11,000/7,273= 1.5

(1 Direct : 1.5 Price)  Direct Resource Productivity

- Markup Factor = Price / Factory Cost= 11,000/ 8,636=1.27

(Office Overhead + Profit) = 27% Factory Cost

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 54
 Business KPIs Analysis
Dep KPIs Unit Current Target Evaluation
Financial Profit % 21% 15% Positive
Marketing Market Share % 14.29 20% Negative
Operations Capacity Utilization % 55% 70% Negative
Materials Inventory Turnover turns/year 5.2 6 Negative
Objectives and Recommendations for the next period
Dep Target Objective Improvement Recommendations
Improve Profit Ratio 1) Reducing fixed cost
Materials Operation Marketing Financial

from 21% to ≥ 25% 2) Reducing overhead cost

Reduce Average Unit Cost 3) Reducing production cost
from 9091 to ≤ 8800 LE/ton 4) Improving financial position
Improve Market Share 1) Enhancing customer service
from 14.29% to ≥ 20% 2) Creating competitive advantage
3) Creating new markets
Improve Annual Sales Quantity
4) Developing the motivation program
from 100,000 to ≥ 140,000 unit/year
Improve Capacity Utilization 1) Analyzing the product defects
from 55% to ≥ 70% 2) Improving working conditions
3) Enhancing MRP system
Improve Annual Production Quantity
4) Updating maintenance programs
from 110,000 to ≥ 140,000 unit/year
Improve Inventory Turnover 1) Improving Material Plans
from 5.2 to ≥ 6.0 turns/year
2) Improving Inventory Control
3) Improving Order Management
Reduce Average Inventory Value
4) Improving Operation plans
SCMfrom 175,000,000 to ≤ 151,515,000
Supply Chain Management
LE/year Best Practice - Dr. Attia Gomaa - 2022 55
Case Study #1-F:

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 56
Case Study #2:

Product
Mat. #1
#1
Product
Mat. #2
#2
WIP1 WIP2 WIP3 WIP4 WIP5
Mat. Product
Process Process Process Process Process Process
#3
#3 #1 #2 #3 #4 #5 #6

Mat. Product
#4
#4

Mat. Product
#5 #5

0% Final Work In Process (WIP)

100% Final
Products Products
Relative Weight

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 57
• Annual Cost of Sales = $ 10,000,000
• Average Inventory Value = Material + WIP + Products = $ 2,000,000
• Inventory Turnover = Cost of Sales / Average Inventory Value = 5 turns/year
• Inventory Weeks of supply = No. of weeks / Inventory Turnover = 52/5 = 10.4 weeks
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 58
Case Study #3:

Annual Cost of Sales last year = $3,410,000

Working conditions = 52 weeks per year.
Inventory Items = 7 item
(3 raw materials, 2 work-in-process items, and 2 finished goods)

Category Part Number Average Level Unit Value

Raw materials 1 15,000 $ 3.00

2 2,500 5.00
3 3,000 1.00
Work-in-process 4 5,000 14.00
5 4,000 18.00
Finished goods 6 2,000 48.00
7 1,000 62.00

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 59
 Part Number Average Level Unit Value Total Value
$ 45,000
1 15,000  $ 3.00 = 12,500
2 2,500  5.00 = 3,000
3 3,000  1.00 = 70,000
4 5,000  14.00 = 72,000
5 4,000  18.00 = 96,000
6 2,000  48.00 = 62,000
7 1,000  62.00 = $360,500
Average aggregate inventory value = 360,500

• Annual Cost of Sales = $3,410,000

• Average Inventory Value = Material + WIP + Products = $ 360,500
• Inventory Turnover = Cost of Sales / Average Inventory Value = 9.5 turns/year
• Inventory Weeks of supply = No. of weeks / Inventory Turnover = 52/9.5 = 5.5 weeks

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 60
Case Studies:

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 61
Case Studies:

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 62
Chapter (3): Financial Analysis
Product Cost Analysis

Resource
(5 M’s)
Planning
1) Materials
2) Machines
3) Manpower
4) Method
5) Money
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 63
 Cost Breakdown Structure Sales
Revenue

Total Cost Profit

Direct Cost Overhead

Technical
(Average %)
(Cost Allocation)

Materials Machine Labour Technical Office

Cost Cost Cost Overhead Overhead
(Factory) (Office)

Critical
Factory Cost
Resources
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 64
Cost Breakdown Structure
Unit Price
• Unit Level - $/unit

Unit Cost Unit Profit

- (100%) Base - (-%)

Direct Cost Overhead

Technical
- (-%) - (-%)

Materials Machine Labour Technical Office

Cost Cost Cost Overhead Overhead
- (- %) - (- %) - (-%) - (-%) - (-%)

Critical Factory Cost

Resources - (-%)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 65
Brainstorming:
Monthly Report:
Product: Fan XYZ “Standard Product”

Production Information:
Total Production Quantity = 11,000 units
Rejected Quantity = 1,000 units
Total Production Cost = 1,000,000 LE

Sales Information:
Total Sales Quantity = 8,000 units
Total Sales Revenue = 960,000 LE

Operating Profit = Sales Revenue – Total Cost

9,60,000 – 1,000,000 = - 40,000

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 66
Brainstorming:
Monthly Report:
Product: Fan XYZ “Standard Product”
Production Information:
Total Production Quantity = 11,000 units
Rejected Quantity = 1,000 units
Total Production Cost = 1,000,000 LE

Sales Information:
Total Sales Quantity = 8,000 units
Total Sales Revenue = 960,000 LE

Operating Profit = Sales Revenue – Total Cost

9,60,000 – 1,000,000 = - 40,000
 (assume; Zero Stock)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 67
Profit Analysis: Base

Operating Profit
= Total Revenue – Total Cost
 (assume; Zero Stock) TC

Total
Operating Profit Cost
= Sales Revenue – Cost of Sales

Price
Stock Types:
• Final products
• Work In Process (WIP)
• Raw Materials
• Spare Parts, etc. Profit

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 68
Brainstorming:
Monthly Report:
Product: Fan XYZ “Standard Product”
Production Information:
Total Production Quantity = 11,000 units
Rejected Quantity = 1,000 units
Total Production Cost = 1,000,000 LE
Net Production Quantity = 11,000 -1,000 = 10,000 units
Average Unit Cost = 1,000,000 / 10,000 = 100 LE/unit
Sales Information:
Total Sales Quantity = 8,000 units
Total Sales Revenue = 960,000 LE
Average Unit Cost = 960,000 / 8,000 = 120 LE/unit
Operating Profit = Sales Revenue – Cost of Sales
960,000 – 8,000 *100 = + 160,000
Unit Cost = 100 LE/unit
Unit Price = 120 LE/unit
Profit % = 20 / 100 = 20% from cost
= 20 / 120 = 16% from sales
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 69
Product Cost Analysis: (Standard Information)
Product / Project: xxxxxxx Year/Month:

Unit Price= --- LE/unit Planned Capacity = --- units/year

Cost Classification Matrix
Annual Annual
Cost Elements
Fixed Cost Variable Cost
1) Raw Materials
2) Technical labors
Direct Costs
3) Productive Equipment
4) Sub-Contractor
5) Technical Overhead Costs
Overheads
6) Office Overhead Costs

Must Be Customized
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 70
Product Cost Analysis: (Standard Information)
Product / Project: xxxxxxx Year/Month:

Unit Price= --- LE/unit Planned Capacity = --- units/year

Cost Classification Matrix
Annual Annual
Cost Elements
Fixed Cost Variable Cost
1) Raw Materials x
2) Technical labors x x
Direct Costs
3) Productive Equipment Capital Running
4) Sub-Contractor x x
5) Technical Overhead Costs x x
Overheads
6) Office Overhead Costs x

Must Be Customized
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 71
Based on Cost Classification Matrix;

Cost Analysis
Direct &
Overhead

Cost
Breakdown Fixed &
Structure Variable

Cost KPIs
Analysis
Breakeven
Analysis
Sensitivity ....etc.
Analysis

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 72
Each Indicator: • Planned Cost
• Value ($) • Actual Cost
• Ratio (%) • Variance Analysis
• Factor
Cost Analysis

Profit Value Margin Markup Breakeven

Ratio Added Factor Factor Point

Main Indicators:
- Profit = Price - Cost  Total Productivity
- Value Added Factor = Price / Mat. Cost  Material Productivity
- Margin Factor = Price / Direct Cost  Direct Resource Productivity
- Markup Factor = Price / Factory Cost  Factory Productivity
- Breakeven Point = F / (p-v)  Margin of Safety

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 73
 Cost KPIs Analysis

External
Resource Direct Factory Variable
TC Cost Cost
Cost Cost

Total Or
Cost
Site Cost

Price Value Margin Contribution

Added Factor Margin
1.5 to 2.5 1.3 to 1.7 1.4 to 1.6
 2.0 Markup
Factor
 1.5 1.2 to 1.3  1.5
Profit
 1.25

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 74
Breakeven Quantity of Sales:
Total costs = fixed costs + variable costs
Total fixed cost (TFC) is the cost of fixed inputs, inputs that do not –
vary with output (e.g., rent)

Total variable cost (TVC) is the cost of all inputs that vary with output –
(e.g., wages, raw materials)

Total Fixed Costs

QBE =
Price  Var. Cost per unit

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 75
Break-Even Analysis: Cost-Volume-Profit Chart

Total revenue line

Breakeven point Profit

Profit
Total cost = Total revenue
Profit = 0 Total cost line
Cost

Variable cost

Loss Fixed cost

Production Volume (units/period)

Breakeven quantity =
(Total Fixed Cost) / (unit price – unit variable cost)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 76
 CAPEX and OPEX Analysis
Total Cost
‫التكاليف الكلية‬

Capital Cost Running Cost

‫التكليف اإلستثمارية‬ ‫التكاليف التشغيلية‬

CAPEX Ratio + OPEX Ratio = 100%

Capital Expenses = CAPEX Ratio (Best CAPEX ≥ 25%)
= Fixed Asset Depreciation / Annual Total cost
Operating Expenses = OPEX Ratio (Best OPEX ≤ 75%)
= 100 – CAPEX
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 77
Case #1: Product Cost Analysis (Standard Information)
The cost classification matrix for a product (First year -----)
is as follows:
Product: LCD TV Average Unit Price = 300 $/unit
Planned Capacity = 100,000 units/year
$1,000,000 Cost Classification Matrix
Cost Elements Fixed Cost Variable Cost
Raw Materials 10
Direct Costs Technical labors 2 3
Productive Equipment 6 4
Technical Overhead 1 1
Overheads
Office Overhead 1 -
Based on this information, discuss the following:
a) Cost breakdown structure (Total Level & Unit Level)
b) Cost Indicators (Profit, Value Added, Margin, Markup)
c) Break even ratio & Margin of safety
d) Sensitivity analysis for material cost and unit price change (± 10% & 20%)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 78
 The cost classification matrix for a project (First year 2018) is as follows:
Product: LCD TV Unit Price = 300 $/unit
Planned Capacity = 100,000 units/year

$1,000,000 Cost Classification Matrix

Cost Elements Fixed Cost Variable Cost Total Cost
Raw Materials - 10 10
Direct Technical labors 2 3 5
Costs
Equipment & Tools 6 4 10

Technical Overhead 1 1 2
Overheads
Office Overhead 1 - 1
Total 1,000,000 $ 10 18 28

Unit Cost = 28,000,000 / 100,000 = 280 $/unit

Unit Profit = 300 – 280 = 20 $/unit (7.14% cost) << 20% “Low Profit Ratio”

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 79
Cost Breakdown Structure Planned Capacity
= 100,000
Total Revenue units/year
Annual Level 30 M$

Total Cost Total Profit

28 (100%) Base 2 (7.1 %)

Direct Cost Overhead

Technical
25 (89.2%) 3 (10.7%)

Materials Machine Labour Technical Office

Cost Cost Cost Overhead Overhead
10 (35.7 %) 10 (35.7%) 5 (17.8 %) 2 (7.1 %) 1 (3.5%)

Critical Factory Cost

Resources 27 (96.4%)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 80
Cost Breakdown Structure Planned Capacity
= 100,000
Unit Price units/year
Unit Level 300 $/unit

Unit Cost Unit Profit

280 (100%) Base 20 (7.1 %)

Direct Cost Overhead

Technical
250 (89.2%) Factory Cost 30 (10.7%)
270 (96.4%)

Materials Machine Labour Technical Office

Cost Cost Cost Overhead Overhead
100 (35.7 %) 100 (35.7%) 50 (17.8 %) 20 (7.1 %) 10 (3.5%)

Price Policy:
Critical 1) Target Price = 300 $/unit
Resources 2) Breakeven Price = 280
SCM 3) Gomaa
Supply Chain Management Best Practice - Dr. Attia Worst- Price
2022 = 270 81
Cost KPIs Analysis:
From cost breakdown structure

Main Indicators:
- Profit = Price – Cost = 300 – 280 = 20 $/unit
= 7.1 % total cost  Net Income

- Value Added Factor = Price / Mat. Cost = 300 / 100 = 3

(1 Material : 3 Price)  Material Productivity

- Margin Factor = Price / Direct Cost = 300 / 250 = 1.2

(1 Direct : 1.2 Price)  Direct Resource Productivity

- Markup Factor = Price / Factory Cost= 300 / 270 = 1.11

(Office Overhead + Profit) = 11% Factory Cost

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 82
Breakeven %
Total Fixed Cost = 10,000,000 $ Unit Variable Cost = 180 $/unit Unit Price= 300 $/unit

BEP = Total Fixed Cost / (Unit Price - Unit Variable Cost)

= 10,000,000 / (300 – 180) = 83,333 unit
Planned Capacity = 100,000 units/year
BE % = 83,333 / 100,000 = 83.3% Margin of safety = 100 – 83.3 = 16.7
Margin of Safety = 16.7% <<< 30 % (Very Low  High Risk)
For example; Corrective Action: Try to reduce fixed cost by 20%

Cost-Volume-Profit Chart
Total revenue line
Profit
Breakeven point
83,333 units Total cost line
Cost

Variable cost

Loss Fixed cost

Production Volume (units/period)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 83
 Sensitivity analysis for material cost and unit price change (±20%)
Profit Matrix ($/unit)
0%
Deviation -20% -10% 10% 20%
Base
Unit price -40 -10 20 50 80
Unit Material 40 30 20 10 0

Scenario Profit $/unit

Optimistic 80

Most Likely
20
(Base)

Pessimistic -40
Corrective Action
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 84
Assignment: Product Cost Analysis:
The cost classification matrix for a project (First year 2018)
is as follows:
Product: LCD TV Unit Price = 320 $/unit
Planned Capacity = 120,000 units/year

$1,000,000 Cost Classification Matrix

Cost Elements Fixed Cost Variable Cost
Raw Materials 11
Direct Costs Technical labors 2 3
Productive Equipment 6 4
Technical Overhead 1 1
Overheads
Office Overhead 1 -

Based on this information, discuss the following:

a) Cost breakdown structure
b) Cost Indicators (Profit, Value Added, Margin, Markup)
c) Break even ratio & Margin of safety
d) Sensitivity analysis for material cost and unit price change (± 10% & 20%)
e) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 85
Case #2: Product Cost Analysis ‫ فضي‬،‫ لتر‬25 ‫ سعة‬،‫ميكروويف فريش‬

The cost classification matrix for a project (First year 2018)

is as follows:
Product Name : Microwave Unit Price= 2000 LE/unit
Planned Capacity = 20,000 units/year

LE 1,000,000 Cost Classification Matrix

Cost Elements Fixed Cost Variable Cost
1) Materials - 20
Direct Cost 2) Technical labors 3 2
3) Equipment & Tools 2 1
Overhead 5) Technical Overhead Costs 1.5 1.5
Cost 6) Office Overhead Costs 1.5 0.5

Based on this information, discuss the following:

a) Cost Breakdown Structure
b) Cost Indicators (Profit, Value Added, Margin, Markup)
c) Break Even Ratio & Margin of Safety
d) Sensitivity Analysis for Material Cost and Unit Price change (± 10% & 20%)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 86
 ‫ فضي‬،‫ لتر‬25 ‫ سعة‬،‫ميكروويف فريش‬

The cost classification matrix for a project (First year 2018)

is as follows:
Product Name : Microwave Unit Price= 2000 LE/unit
Planned Capacity = 20,000 units/year

LE 1,000,000 Cost Classification Matrix

Cost Elements Fixed Cost Variable Cost Total Cost
Raw Materials - 20 20
Direct Technical labors 3 2 5
Costs
Equipment & Tools 2 1 3

Technical Overhead 1.5 1.5 3

Overheads
Office Overhead 1.5 0.5 2
Total 1,000,000 LE 8 25 33
Unit Cost = 33,000,000 / 20,000 = 1650 LE/unit
Unit Profit = 2000 – 1650 = 350 $/unit (21.2%) > 20% “Good Profit Ratio”

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 87
Cost Breakdown Structure Planned Capacity
= 20,000
Total Price units/year
Annual Level 40 M.LE

Total Cost Total Profit

33 (100%) Base 7 (21.2 %)

Direct Cost Overhead

Technical
28 (84.8%) Factory Cost 5 (15.2%)
30 (93.9%)

Materials Labour Machine Technical Office

Cost Cost Cost Overhead Overhead
20 (60.6 %) 5 (15.2 %) 3 (9.1%) 3 (9.1 %) 2 (6.1%)

Critical
Resources
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 88
Cost Breakdown Structure Planned Capacity
= 20,000
Total Price units/year
Unit Level 2000 LE/unit

Total Cost Total Profit

1650 (100%) Base 350 (21.2 %)

Direct Cost Overhead

Technical
1400 (84.8%) Factory Cost 250 (15.2%)
1550 (93.9%)

Materials Labour Machine Technical Office

Cost Cost Cost Overhead Overhead
1000 (60.6%) 250 (15.2%) 150 (9.1%) 150 (9.1%) 100 (6.1%)

Price Policy:
Critical Target Price = 2000 LE/unit
Resources Worst Price = 1550 LE/unit
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 89
Cost KPIs Analysis:
From cost breakdown structure

Main Indicators:
- Profit = Price – Cost = 2000 – 1650 = 350 LE/unit
= 21.2 % cost

- Value Added Factor = Price / Mat. Cost = 2000 / 1000 = 2

(1 Material : 2 Price)  Material Productivity

- Margin Factor = Price / Direct Cost = 2000 / 1400 = 1.43

(1 Direct : 1.43 Price)

- Markup Factor = Price / Factory Cost= 2000 / 1550 = 1.29

(Office Overhead + Profit) = 33% Factory Cost

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 90
Breakeven %
Total Fixed Cost = 8,000,000 LE Unit Variable Cost = 1250 LE/unit Unit Price= 2000 LE/unit

BEP = Total Fixed Cost / (Unit Price - Unit Variable Cost)

= 8,000,000 / (2000 – 1250) = 10,667 unit
Planned Capacity = 20,000 units/year
BE % = 10,667 / 20,000 = 53.3%
Margin of Safety = 46.7% >> 30 % (Good)

Cost-Volume-Profit Chart
Total revenue line
Profit
Breakeven point
10,667 units Total cost line
Cost

Variable cost

Loss Fixed cost

Production Volume (units/period)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 91
Sensitivity analysis for material cost and unit price change (±20%)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 92
Case #3: Product Cost Analysis
The cost classification matrix for a project (First year 2014)
is as follows:
Product: Electric Fan Unit Price = 150 LE/unit
Planned Capacity = 100,000 units/year

$1,000,000 Cost Classification Matrix

Cost Elements Fixed Cost Variable Cost
Raw Materials 7
Direct Costs Technical labors 2 1
Equipment & Tools 0.5 0.5
Technical Overhead 0.2 0.1
Overheads
Office Overhead 0.1 -

Cost Analysis?
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 93
Case #4: Product Cost Analysis
The cost classification matrix for a project (First year 2015)
is as follows:
Product: Petrochemical Unit Price = 1500 $/ton
Planned Capacity = 100,000 ton/year

Cost Classification Matrix

Fixed Cost Variable Cost
Cost Elements
$1,000,000 $1,000,000
Raw Materials - 65
Direct Costs Technical labors 7 2
$1,000,000 Equipment & Tools 30 5
Sub-Contractors 3 2
Overheads Technical Overhead 4 1
$1,000,000 Office Overhead 2 1

Cost Analysis?
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 94
Case #5: Product Cost Analysis

Project: Steel Structure Project (Lamp sum 12,500,000)

Duration = 3 months * 25 day = 75 Working days
Planned Capacity = 10,000 m2 * 50Kg/m2 = 500,000 kg = 500 ton
 Average Unit Price = 1250 LE/m2 = 25 LE/kg

Cost Classification Matrix

Cost Elements Fixed Cost Variable Cost
Materials (outsource) 12 LE/kg
Technical labors 3 LE/kg
Direct Costs
Equipment & Tools (Assets) 1000 LE/day 2000 LE/day
Sub-Contractor (outsource) 50,000
Technical Overhead Costs 5% DC 5% DC
Overheads
Office Overhead Costs 10% DC

Cost Analysis?
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 95
Project: Steel Structure (Lamp sum 12,500,000)
Duration = 3 months * 25 day = 75 Working days
Planned Capacity = 10,000 m2 * 50Kg/m2 = 500,000 kg = 500 ton
 Average Unit Price = 1250 LE/m2 = 25 LE/kg
Cost Classification Matrix
Annual Fixed Annual Variable
Cost Elements
Cost Cost Total
Materials (outsource) 6,000,000 6,000,000
Technical labors 1,500,000 1,500,000
Direct
Equipment & Tools (Assets) 75,000 150,000 225,000
Costs
Sub-Contractor (outsource) 50,000 50,000
Total Direct Cost 7,775,000
Technical Overhead Costs 388,750 388,750 777,500
Overheads Office Overhead Costs 777,500 777,500
Total Overhead 1,555,000
Total Cost 2,791,250 6,538,750 9,330,000
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 96
Case #6: Product Cost Analysis

The cost classification matrix for a project is as follows:

Projoct: Building at New Cairo City

Planned Capacity = 6000 m2 Unit Price = 6000 LE/m2

LE 1,000,000 Cost Classification Matrix

Cost Elements Fixed Cost Variable Cost
Raw Materials 18
Direct Costs Technical labors 3 3
Equipment & Tools 4 2
Technical Overhead 2 1
Overheads
Office Overhead 1 0.5

Cost Analysis?
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 97
Case #7: Break Even Analysis
A manager is trying to decide between two machines (A or B):

Item A B

Initial cost, $ 100,000 130,000

Machine life, years 5

Salvage value, $ 15,000 20,000

Annual maintenance, $ 3,000 4,000

Variable cost; $/unit 10 8

Annual production quantity, unit 10,000

Based on this information, select the best machine.

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 98
• Alt. 1: Machine A:
– Capital Cost =100,000 –15,000= 85,000 A
B
– Maintenance Cost =3,000 * 5 = 15,000
– Total Fixed Cost = 100,000
– Total Production Quantity = Q (5 years) BEP
– Total Variable cost = 10 * Q
Over
– Total Cost = 100,000 + 10 * Q
• Alt. 2: Machine B:
5 years
– Capital Cost =130,000 –20,000= 110,000
– Maintenance Cost = 4,000 * 5 = 20,000
– Total Fixed Cost = 130,000
– Total Variable cost = 8 * Q 15,000
– Total Cost = 130,000 + 8 * Q
<15,000 15,000 >15,000
At BEQ:
A A,B B
TC(A) = TC(B)
100,000 + 10 * Q = 130,000 + 8 * Q To produce 10,000/year
2 Q = 30,000 Q = 10,000 * 5 = 50,000
Q = 15,000 units (5 years) M/c B is the best

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 99
• Alt. 1: Machine A:
– Capital Cost =100,000 –15,000= 85,000 A
– Annual Depreciation = 85,000/5 = 17,000
B
– Annual Maintenance Cost =3,000
– Annual Fixed Cost = 17,000+3,000 = 20,000
BEP
– Annual Production Quantity = Q
– Annual Variable cost = 10 * Q Annually
– Annual Cost = 20,000 + 10 * Q
• Alt. 2: Machine B:
– Capital Cost =130,000 –20,000= 110,000
– Annual Depreciation = 110,000/5 = 22,000 A B
– Annual Maintenance Cost = 4,000
– Annual Fixed Cost = 26,000
3,000
– Annual Variable cost = 8 * Q
– Annual Cost = 26,000 + 8 * Q
<3,000 3,000 >3,000
At BEQ:
A A,B B
TC(A) = TC(B)
20,000 + 10 * Q = 26,000 + 8 * Q To produce 10,000/year
2 Q = 6,000 M/c B is the best
Q = 3,000 units/year
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 100
 Case #9: Break Even Analysis

A manager is trying to decide between two machines (A or B):

A B
Initial cost, $ 10,000 15,000
Life, years 5 7
Salvage value, $ 1,000 2,000
Annual maintenance, $ 1,000 1,200
Variable cost; $/unit 1 0.80

Based on this information, select the best machine.

EGR SCM
312 - 22 Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022
101 101
• Alt. 1: Machine A:
– Capital Cost =10,000 –1,000= 9,000 A
B
– Maintenance Cost =1,000*5 = 5,000
– Total Fixed Cost = 14,000
– Total Variable cost = 1 * Q BEP
– Total Cost = 14,000 + 1 * Q

• Alt. 2: Machine B:
– Capital Cost =15,000 –2,000= 13,000
– Maintenance Cost =1,200*7 = 8,400
– Total Fixed Cost = 21,400
– Total Variable cost = 0.8 * Q 37000
– Total Cost = 21,400 + 0.8 * Q

At BEQ: <37000 37000 >37000

TC(A) = TC(B) A A,B B
14,000 + 1 * Q = 21,400 + 0.8 * Q
0.2 Q = 7,400
Q = 37,000 units
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 102
Chapter (4):
Forecasting Techniques, 1948
The obtained information about the
past are used to forecast the future. Data
For example; Quality
• Market Demand
• Market Price
+
• Market Sales
Future Forecasting
• Production Cost Model
• Resources; … etc.
+
History Forecasting
Values
+
Forecasting
Accuracy
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 103
 Market Forecasting
Case Study #1:
The market information for a product is as follows:
Average Market Price Sales Quantity
# Year (LE/unit) (units)
1 2014 89 19,500
2 2015 80 20,000
3 2016 93 22,000
4 2017 87 20,000
5 2018 100 30,000
6 2019 106 32,000
7 2020 112 33,000
Based on this information, discuss the following:
a) Data trends
b) Forecast accuracy
c) Forecast for the next 3 years
d) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 104
 Market Forecasting - Linear Trend Model

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 105
 Forecast Function in Excel
x y1 y2
\Average Market Price Sales Quantity
Year
(LE/unit) (units)
2014 89 19,500
2015 80 20,000
2016 93 22,000
2017 87 20,000
2018 100 30,000
2019 106 32,000
2020 112 33,000
2021 114 35,571
2022 118 38,161
2023 123 40,750

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 106
Excel  Select Data  Data  Forecast Sheet
Average Market Price (LE/unit)
Forecast Lower Upper
# Year
Value Forecast Forecast

8 2021 115 102 128

9 2022 120 105 134

10 2023 124 108 140

Sales Quantity (units)

Forecast Lower Upper
# Year
Value Forecast Forecast

8 2021 35,928 30,307 41,550

9 2022 38,511 32,715 44,307

10 2023 41,094 35,127 47,060

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 107
Trend Forecasting Excel

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 108
 Correlation Coefficient
(r = 0 to ± 1)
r = 0.5 r = - 0.9 r = 0.9

X1 X2 X3

Weak Positive Correlation Negative correlation Positive Correlation

r = 0.2
r = - 0.5

X4 X5 X6

Weak Negative Correlation No Correlation Nonlinear Correlation

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 109
Correlation Coefficient (r)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 110
Forecasting Accuracy (Goodness-of-Fit):
Coefficient of Determination R2

R2 close to 1 would indicate a good fit to the past data.

R2 > 90% 80-90 % 60-80 % 40-60 % 20-40% < 20%

Very Very
Evaluation Excellent Good Fair Weak
Good Weak

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 111
Case Study #2: 16 2200
Time Period Sales Quantity 17 2300
(month) (units) 18 2500
1 1000 2200
19
2 2000
20 2500
3 1800
4 1700 21 2700
5 1500 22 2800
6 2100 23 3200
7 1600 24 2900
8 2000 25 3000
9 1900
26 ?
10 1800
27 ?
11 1800
12 2000 28 ?
13 2300 29 ?
14 2000 30 ?
15 2500 31 ?
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 112
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 113
Excel  Select Data  Data  Forecast Sheet

Sales Quantity (units)

Forecast Lower Upper
#
Value Forecast Forecast

26 3,053 2,497 3,610

27 3,117 2,543 3,691
28 3,181 2,590 3,772
29 3,245 2,638 3,852
30 3,309 2,685 3,932
31 3,372 2,733 4,012

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 114
 Market Forecasting
Case Study:
The market information for construction materials is as follows:
Month# Cement Price Steel Price
(LE/ton) (LE/ton)
1- January 2021 660 11,000
2- February 2021 700 11,200
3- March 2021 750 11,500
4- April 2021` 800 11,900
5- June 2021 850 12,400
6- May 2021` 900 12,700
7- July 2021 950 13,100
8- August 2021 960 13,500
9- September 2021 980 13,800
10- October 2021 1,100 14,000

Based on this information, discuss the following:

Material Cost Forecast for the next 4 months (#11 to #14)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 115
Recommendations:

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 116
 Seasonal Forecasting
Case Study #3:
# Year Quarter Sales $M
1 2017 1 4.8
2 2 4.1
3 3 6.0
4 4 6.5
5 2018 1 5.8
6 2 5.2
7 3 6.8 Year Q1 Q2 Q3 Q4 Total
8 4 7.4 2017 4.8 4.1 6.0 6.5 21.4
9 2019 1 6.0 2018 5.8 5.2 6.8 7.4 25.2
10 2 5.6 2019 6.0 5.6 7.5 7.8 26.9
11 3 7.5 2020 6.3 5.9 8.0 8.4 28.6
4 7.8 Total 22.9 20.8 28.3 30.1 102.1
12
Weight 0.22 0.20 0.28 0.29 1.00
13 2020 1 6.3
Forecast
14 2 5.9 7.03 6.39 8.69 9.24 31.35
2021
15 3 8.0
16 4 8.4
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 117
Case Study: Market Forecasting
A small shirt manufacturing company
has the following information:
Market Sales Market Number of Customer
Quarter / Price Share Customers Claims
Year Quantity
(LE/unit) (units) % )‫(محل بيع‬ %
1 Q1-19 88 3,400 4.5% 20 1.5%
2 Q2-19 95 3,600 5.2% 22 1.7%
3 Q3-19 102 3,800 6.1% 25 1.9%
4 Q4-19 110 4,100 6.7% 28 2.0%
5 Q1-20 120 4,500 7.3% 32 2.2%
6 Q2-20 125 5,000 8.4% 35 2.4%
7 Q3-20 130 5,300 8.8% 40 2.5%
8 Q4-20 135 5,500 9.2% 48 2.7%

Based on this information, discuss the market forecasting

parameters for the next year 2021
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 118
 Comments:

The data is
Excellent fit
because R2 > 0.9

Market forecasting parameters for the next year 2021:

x y1 y2 Y3 y4 y5
Market Price Sales Quantity Market Number of Customers
# Q-Year (LE/unit) (units) Share % Customers Claims%
9 Q1-2021 144.4 5,857 10.2 48 2.9
10 Q2-2021 151.3 6,181 10.8 52 3.0
11 Q3-2021 158.2 6,505 11.5 56 3.2
12 Q4=2021 165.2 6,829 12.2 60 3.4
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 119
Time Series Forecasting - Linear Trend Model

a
x

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 120
Example:
Month Sales
(x) (y)
1 37
2 40
3 41
4 37
5 45
6 50
7 43
8 47
9 56
10 52
11 55
12 54

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 121
Example:

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 122
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 123
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 124
Example:
The following table provides a time series of the cost per unit for a certain
material over the past eight years:

Year 2009 2010 2011 2012 2013 2014

Average
35 38 40 45 50 54
Cost/Unit ($)
Based on this information; discuss the following:
1. Construct a time series plot.
2. Develop the linear trend equation for this time series.
3. Forecast the cost/unit for the next three years.

Yt = 30.09 + 3.88 x
Y7 = 57.25
Y8 = 61.13
Y9 = 65.1
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 125
Chapter (5):
Material Planning
(Raw materials, Parts, WIP, Final Products)

Demand Type?
Car Assembly Plant Car Maintenance Center

Dependent Demand Independent Demand

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 126
 Demand Type?
Final Product Independent
demand

Dependent
demand

Components

• Dependent demand is certain

• Independent demand is uncertain
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 127
Material Planning (Raw materials, Parts, WIP, Final Products)
Work Types
Planned Work Unplanned Work

Dependent Demand Independent Demand

Material Requirements Planning Inventory Control

MRP: Policy:
Period (month) 0 1 2 3 …
Gross Requirements
Schedule Receipts
Stock On Hand
Net Requirements
Planned Order Receipt
Planned Order Release

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 128
 Materials Requirements Planning (MRP), 1970s
• Marketing Forecasting 2) Master MPS for Final Products
• Customer Orders Production Period # 1 2 3 … …
Schedule Demand A1 … … … … …
Business Plan
+ Brainstorming (MPS) Demand A2 … … … … …
… … … … … …

Material 1) Product
3) Inventory
Status
Requirement Structure
Planning Record
Records
(MRP) (BOM)
• On Hand A
• Safety Stock
• Lot Size B(2) C(1)
• Lead Time 4) MRP Outputs
• Schedule Receipt, … etc.
(Reports) D(3) E(2) D(4) E(2)

Work orders Purchase orders Material Plans ….

Inventory Policy: When to order? & How much to order?
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 129
 Assembly Time Chart
Time-Phased Product Structure (Product Schedule)
“Standard Cycle Time Per Lot”
For example;

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 130
 Gross Requirements & Production Schedule

Example #1:
Consider the following product structure:
Each X consists of 1 A, 2 B’s, and 3 Cs.

Item X A B C
Lead Time (days/lot) 2 3 4 5

Based on this information, discuss the following:

1) Construct the product structure or bill of quantity (BOM).
2) How many items (A,B,C) are necessary to produce 2000 X’s?
3) Construct the time-phased product structure

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 131
 Product Structure: X= 2000
X

A,1 B,2 C,3

A = 2000*1 B = 2000*2 A = 2000*3
 BOM: = 2000 = 6000
= 4000

Item X A B C
Lead Time (days/lot) 2 3 4 5

Time in Days
 Time-Phased 1 2 3 4 5 6 7
Product Structure: A (3)
B (4) X (2)
C (5)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 132
 Gross Requirements & Production Schedule
Example #2:

Consider the following product structure: Each A consists of 2 B’s

and 1 C. Each B consists of 3 D’s and 2 E’s. Each C consists of 4
D’s and 2 E’s.

Item A B C D E
Lead Time (days/lot) 3 2 3 4 3

Based on this information, discuss the following:

1) Construct the product structure or bill of quantity (BOM).
2) How many items (B,C,D,E) are necessary to produce 400 A’s?
3) Construct the time-phased product structure

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 133
 Product structure:
Bill of quantity (BOM):

A 400 A

400*2=800 B B(2) C(1) 400*1=400 C

E(2) E(2)
D(3) 800*2=1600 E D(4)
400*2=800 E
800*3=2400 D 400*4=1600 D

2400 D’s +1600 D’s = 4000 D’s 1600 E’s +800 E’s = 2400 E’s

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 134
Time-phased product structure:

Item A B C D E
Lead Time (days/lot) 3 2 3 4 3

Time in Days
1 2 3 4 5 6 7 8 9 10
E (3)
B (2)
D (4) A (3)
D (4)
C (3)
E (3)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 135
Material Types:
1) Raw Materials
2) Work In Process (WIP)
3) Final Products

Lot sizing techniques used in MRP systems

Most Common: Container

1) Lot For Lot (LFL) or (L4L)

2) Fixed Order Quantity (FOQ)

3) Period Order Quantity (POQ)

4) Minimum Lot Size (Q+)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 136
Example #3:
Complete the following table. Lead time for the item is 1 week, the
fixed order quantity is 40 units, and Safety Stock = 50 units.
What action should be taken?

Periods 0 1 2 3 4 5 6 7

Gross Requirements 80 0 200 80 0 280

Schedule Receipts

Inventory On Hand 150

Net Requirements

Planned Order Receipt

Planned Order Release

Inventory Policy: When to order? & How much to order?
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 137
Example #4:
Item: X On Hand= 200 units Safety Stock = 50 units
Lot Size = 200 Lead Time = 2 week Schedule Receipts= (200 units, week#1)
Unit Cost= 1000 LE/unit Order Cost = 100 LE/order

Periods 0 1 2 3 4 5 6 7 8 9

Gross Requirements 0 100 200 300 0 100 200 300

Schedule Receipts

Inventory On Hand

Net Requirements

Planned Order Receipt

Planned Order Release

Based on this information, discuss the following:

1) Direct Material Cost 2) Open Inventory 3) End Inventory
4) Average Inventory 5) Average inventory cost 6) Total Orders Cost
7) Stock Control Chart

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 138
Item: X On Hand= 200 units Safety Stock = 50 units
Lot Size = 200 Lead Time = 2 week Schedule Receipts= (200 units, week#1)
Unit Cost= 1000 LE/unit Order Cost = 100 LE/order

Periods 0 1 2 3 4 5 6 7 8 9

Gross Requirements 0 100 200 300 0 100 200 300

Schedule Receipts 200

Inventory On Hand 200 400 300 100 200 200 100 100 200 200

Net Requirements 250 150 250

Planned Order Receipt 400 200 400

Planned Order Release 400 200 400

Inventory Policy: When to order? & How much to order?

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 139
Example #5: One Product & Single Item

Item Information:
Project: Construction Project Phase: Concrete
Item Code: MS12 Item Description: Steel 12 mm
Material Unit: ton Item Cost: 11,850 LE/ton Inventory Data:
On Hand = 150 units
Safety Stock = 50 units
Demand Schedule: Lot Size = 40 units
Week # 1 2 3 4 5 6 Lead Time = 1 week
Quantity; ton Schedule Receipts= 0
80 0 200 80 0 280
(Q , Period)

Material Plan?
Material
Direct Average Average
Schedule Material Inventory Inventory
When to order? Cost Quantity Cost
How much to order?
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 140
 One Product & Single Item
Item Information:
Item Code: MS12 Item Description: Steel 12 mm
Material Unit: ton Item Cost: 11850 LE/ton MRP Approach
Demand Schedule:
Week # 1 2 3 4 5 6
Quantity; ton 80 0 200 80 0 280
Material Plan:
Inventory Data: Period (week) Open 1 2 3 4 5 6 End

Gross Requirements 80 0 200 80 0 280

On Hand = 150 units
Safety Stock = 50 units Schedule Receipts
Lot Size = 40 units Stock On Hand 150 70
Lead Time = 1 week
Net Requirements
Schedule Receipts= 0 Planned Order Receipt
(Q , Period)
Planned Order Release

Direct Material Cost = Demand * Unit Cost

Average Inventory Quantity =
Average Inventory Cost = (Loan 15%= 144,739 LE)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 141
 One Product & Single Item
Item Information:
Item Code: MS12 Item Description: Steel 12 mm
Material Unit: ton Item Cost: 11,850 LE/ton MRP Approach
Demand Schedule:
Week # 1 2 3 4 5 6
Quantity; ton 80 0 200 80 0 280
Material Plan:
Inventory Data: Period (week) Open 1 2 3 4 5 6 End

Gross Requirements 80 0 200 80 0 280

On Hand = 150 units
Safety Stock = 50 units Schedule Receipts
Lot Size = 40 units Stock On Hand 150 70 70 70 70 70 70 70
Lead Time = 1 week
Net Requirements 180 60 260
Schedule Receipts= 0 Planned Order Receipt 200 80 280
(Q , Period)
Planned Order Release 200 80 280

Direct Material Cost = Demand * Unit Cost= 640 * 11850 = 7,584,000 ton
Average Inventory Quantity = 81 ton
Average Inventory Cost = 81 * 11850 = 964,929 LE (Loan 15%= 144,739 LE)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 142
Material Plan:

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 143
 One Product & Single Item
Item Information:
Item Code: MS12 Item Description: Steel 12 mm
Material Unit: ton Item Cost: 11850 LE/ton MRP Approach
Demand Schedule:
Week # 1 2 3 4 5 6
Quantity; ton 80 0 200 80 0 280
Material Plan:
Inventory Data: Period (week) Open 1 2 3 4 5 6 End

Gross Requirements 80 0 200 80 0 280

On Hand = 150 units
Safety Stock = 50 units Schedule Receipts
Lot Size = LFL Stock On Hand 150 70 70 50 50 50 50 50
Lead Time = 1 week
Net Requirements 180 80 280
Schedule Receipts= 0 Planned Order Receipt 180 80 280
(Q , Period)
Planned Order Release 180 80 280

Direct Material Cost = Demand * Unit Cost= 640 * 11850 = 7,584,000 ton
Average Inventory Quantity = 70 ton
Average Inventory Cost = 70 * 11850 = 829,500 LE (Loan 15%= 124,425 LE)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 144
Example #6: Spare Parts Planning: One Product & Single Item

Item Information:
Equipment: Water Pumps Number of Equipment: 60
Item: Pump Bearing Item Code: BXX
Item Cost: 1000 $/unit Maintenance Policy: Annual

Annual Demand:
Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements 20 0 20 0 20 0 20 0 20 0 20 0

Inventory Data:
On Hand = 20 units
Safety Stock = 10 units
Lot Size = 24 units
Lead Time = 1 Month

Schedule Receipts =
(24 units , Month#1) Material Plan?
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 145
 Item Information:
Equipment: Water Pump Number of Equipment: 60
Item: Pump Bearing Item Code: BXX
Item Cost: 1000 $/unit Maintenance Policy: Annual

Inventory Data:
On Hand = 20 units Safety Stock = 10 units Lot Size = 24 units
Lead Time = 1 Month Schedule Receipts= (24 units , Month#1)

Material Plan:
Period (month) Open 1 2 3 4 5 6 7 8 9 10 11 12 End

Gross Requirements 20 0 20 0 20 0 20 0 20 0 20 0
Schedule Receipts 24
Stock On Hand 20 24 24 28 28 32 32 12 12 16 16 20 20 20
Net Requirements 6 2 18 14
Planned Order Receipt 24 24 24 24
Planned Order Release 24 24 24 24

Direct Material Cost = Demand * Unit Cost= 120 units * 1000 = 120,000 $
Average Inventory Quantity = (Open + End) / 2 = (20+20)/2 = 20 units
Average Inventory Cost = 20 units * 1000 $ = 20,000 $ (Overhead  Bank 14%)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 146
Material Plan:

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 147
Example #7: One Product & Multi Items
Consider the following product structure: Each A consists of 2 B’s
and 1 C. Each B consists of 3 D’s and 2 E’s. Each C consists of 4
D’s and 2 E’s.

Item A B C D E
Inventory On Hand 100 200 200 100 200
Lead Time (days/lot) 3 2 3 4 3
Lot Size; units - 100 100 200 200
Safety Stock - - - - -

Based on this information, discuss the following:

1) Construct the product structure or bill of quantity (BOM).
2) How many D are necessary to produce 400 A’s?
3) Construct the time-phased product structure
4) Construct MRP tables to produce 400 A’s after 10 days.
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 148
 Product structure: A 400 A
Bill of quantity (BOM):

400*2=800 B B(2) C(1) 400*1=400 C

D(3) E(2) D(4) E(2)

800*3=2400 D 800*2=1600 E 400*4=1600 D 400*2=800 E
2400 D’s +1600 D’s = 4000 D’s 1600 E’s +800 E’s = 2400 E’s

Time-phased product structure: Time in Days

1 2 3 4 5 6 7 8 9 10
E
B
D A
D
C
E

Item A B C D E
Lead Time (days/lot) 3 2 3 4 3
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 149
 1A =2B+1C 1 B = 3 D +2 E 1C=4D+2E
MRP tables:
Period 0 1 2 3 4 5 6 7 8 9 10 11
A, LFL,T 3,
Gross Requirements 0 0 0 0 0 0 0 0 0 400
Schedule Receipts
S0

Inventory On Hand 100 100 100 100 100 100 100 100 100 100 -300
Net Requirements 300
Planned Order Receipt 300
Planned Order Release 300
Gross Requirements 600
B, 100,T2,

Schedule Receipts
Inventory On Hand 200 200 200 200 200 200 200 -400
S0

Net Requirements 400

Planned Order Receipt 400
Planned Order Release 400
Gross Requirements 300
C, 100,T3,

Schedule Receipts
Inventory On Hand 200 200 200 200 200 200 200 -100 0
S0

Net Requirements 100

Planned Order Receipt 100
Planned Order Release 100
Gross Requirements 400 1200
D,200,T4,

Schedule Receipts
Inventory On Hand 100 100 100 100 -300 -1100 100
S0

Net Requirements 300 1100

Planned Order Receipt 400 1200
Planned Order Release 400 1200
Gross Requirements 200 800
E,200,T3,

Schedule Receipts
Inventory On Hand 200 200 200 200 0 -800 0
S0

Net Requirements 800

Planned Order Receipt 800
Planned Order Release 800
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 150
Example #8: One Product & Multi Items
Consider the following product structure: Each A consists of 2 B’s and 1 C. Each
B consists of 3 D’s and 2 E’s. Each C consists of 4 D’s and 2 E’s.

Item A B C D E
Stock On Hand 100 200 200 100 200
Lead Time (days/lot) 3 2 3 4 3
Lot Size; units 100 100 100 200 200
Safety Stock 100 100 100 100 100

Demand (Market Plan):

Period #10 #11
Quantity 1000 1500

Based on this information, Construct MRP tables

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 151
MRP tables: 1A =2B+1C 1 B = 3 D +2 E 1C=4D+2E
Period 0 1 2 3 4 5 6 7 8 9 10 11
A, 100,T 3,
Gross Requirements 1000 1500
Schedule Receipts
S 100

Inventory On Hand 100 100 -900 -1400

Net Requirements 1000 1500
Planned Order Receipt 1000 1500
Planned Order Release 1000 1500
Gross Requirements 2000 3000
B, 100,T2,

Schedule Receipts
S 100

Inventory On Hand 200 200 -1800 -2900 100

Net Requirements 1900 3000
Planned Order Receipt 1900 3000
Planned Order Release 1900 3000
Gross Requirements 1000 1500
C, 100,T3,

Schedule Receipts
S 100

Inventory On Hand 200 200 -800 -1400 100

Net Requirements 900 1500
Planned Order Receipt 900 1500
Planned Order Release 900 1500
Gross Requirements 3600C 5700B 9000B
6000C
D,200,T4,

Schedule Receipts
S 100

Inventory On Hand 100 100 -3500 - -8800 200

11600
Net Requirements 3600 11700 8900
Planned Order Receipt 3600 11800 9000
Planned Order Release 3600 11800 9000

Gross Requirements 1800C 3800B 6000B

3000C
E,200,T3,

Schedule Receipts
S 100

Inventory On Hand 200 200 -1600 -6600 -5800 200

Net Requirements 1700 6700 5900
Planned Order Receipt
SCM
1800 6800 6000
Supply Chain Management Best Practice
Planned Order Release 1800 6800 6000
- Dr. Attia Gomaa - 2022 152
Example #9: One Product & Multi Items
Consider the following product structure (Control Panel):
Each A consists of 2 B’s , 3 C’s , 1 D and 5 E’s.

Item ID A B C D E
Item Name Elec. Sheet Measurement
Panel Accessories
Components metal Components
Inventory On Hand 0 0 2 ton 0 3000
Lead Time (week/lot) 1 4 1 1 1
Lot Size; units LFL LFL 5 ton LFL 1000
Safety Stock 0 0 1 ton 2 500

Demand (Market Plan):

Period #10 #11
Quantity 30 20
Based on this information, Construct MRP tables
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 153
Case Study:
Materials Planning
Items Information:
Project: Construction Project Phase: Concrete
• Item Code: MS12 Item Description: Steel 12 mm
• Item Code: CM Item Description: Cement

Material Prices Forecasting: Inventory Records

Cement Steel Inventory Data - Steel: Inventory Data - Cement:
# Month On Hand = 150 ton On Hand = 100 ton
(LE/ton) (LE/ton)
Safety Stock = 50 ton Safety Stock = 30 ton
1 Nov-21 1,100 14,400
Lot Size = 60 ton Lot Size = 60 ton
Lead Time = 1 month Lead Time = 1 month
Schedule Receipts: Schedule Receipts:
(40 ton , moth #1) (40 ton , moth #1)

Demand Schedule:
Month # 1 2 3 4 5 6
Materials
Steel; ton 100 90 80 110 120 70
Plan?
Cement; ton 110 95 110 130 145 95
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 154
 Material Plan
Item Information:
Item Code: MS12 Item Description: Steel 12 mm
Material Unit: ton Item Cost: 14,400 LE/ton MRP Approach
Demand Schedule:
Month # 1 2 3 4 5 6
Quantity; ton 100 90 80 110 120 70
Material Plan:
Inventory Data: Period (month) Open 1 2 3 4 5 6 End

Gross Req. 100 90 80 110 120 70

On Hand = 150 units
Safety Stock = 50 units Schedule Receipts 40
Lot Size = 60 units Stock On Hand 150 90 60 100 50 50 100 100
Lead Time = 1 month
Net Requirements 50 70 60 120 70
Schedule Receipts: Planned O. Receipt 60 120 60 120 120
(40 ton , Month #1)
Planned O. Release 60 120 60 120 120

Direct Material Cost = Demand * Unit Cost

Average Inventory Quantity =
Average Inventory Cost = (Loan 15%= 144,739 LE)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 155
 Material Plan
Item Information:
Item Code: CM Item Description: Cement
Material Unit: ton Item Cost: 1,100 LE/ton MRP Approach
Demand Schedule:
Month # 1 2 3 4 5 6
Quantity; ton 110 95 110 130 145 95
Material Plan:
Inventory Data: Period (month) Open 1 2 3 4 5 6 End

Gross Req. 110 95 110 130 145 95

On Hand = 100 units
Safety Stock = 30 units Schedule Receipts 40
Lot Size = 60 units Stock On Hand 100 30 55 65 55 30 55 55
Lead Time = 1 month
Net Requirements 95 85 95 120 95
Schedule Receipts: Planned O. Receipt 120 120 120 120 120
(40 ton , Month #1)
Planned O. Release 120 120 120 120 120

Direct Material Cost = Demand * Unit Cost

Average Inventory Quantity =
Average Inventory Cost = (Loan 15%= 144,739 LE)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 156
 Materials Planning & Cost Estimation
Case Study:
Project: Construction 96 Villas
Phase: Concrete
Duration: 12 months (Jan. 2022 to Dec. 2022)
Concrete Volume: 250 m3/Villa
Average Strength: 400 Kg/cm2
(Cement 350 kg/m3 & Steel 110 kg/m3)
Materials Cost Forecasting:
Cement Steel Concrete
860 LE/ton 14,200 LE/ton 6,200 LE/m3
Based on this information; discuss the following:
1) Materials planning 2) Cost estimation 3) Subcontractor selection.
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 157
Project: Construction 96 Villas Duration:12 months
Concrete Volume: 250 m3/Villa Average Strength: 400 Kg/cm2
(Cement 350 kg/m3 & Steel 110 kg/m3)
Demand Schedule:
Month # 1 2 3 4 5 6 7 8 9 10 11 12
Villas 8 8 8 8 8 8 8 8 8 8 8 8
Concrete, m3 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000
Steel; ton 220 220 220 220 220 220 220 220 220 220 220 220
Cement; ton 700 700 700 700 700 700 700 700 700 700 700 700

Inventory Records
Inventory Data - Steel: Inventory Data - Cement:
On Hand = 0 On Hand = 0
Safety Stock = (5 to 10%) = 140 ton Safety Stock = 420 ton
Lot Size = 60 ton Lot Size = 60 ton
Lead Time = 1 month Lead Time = 1 month
Schedule Receipts: Schedule Receipts:
(360 ton , moth #1) (1140 ton , moth #1)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 158
MRP in summary; 2) Master Schedule:
Periods
1) Product Structure: Products 1 2 3 …
P1
Products P2
P1 P2 … …

3) Inventory Information:
Item On Hand SS Lot Size LT …
P1
M1 M2 M3 … …
M1
Materials …

Benefits of MRP:
Products Demand Detailed Schedule
1) Reduce inventory
Forecasting for Materials
2) Minimize shortage
3) Improve utilization
MRP 4) Reduce Cost
5) Improve customer
Master Schedule Materials Plans
satisfaction
for End Items (different types)
6) Improve profit
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 159
 MRP Applications – Single Product Multi Items
Case Study #1:

Product Name: Microwave

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 160
 Standard Information
Case Study #1:
‫ فضي‬،‫ لتر‬25 ‫ سعة‬،‫ميكروويف فريش‬
Product Name: Microwave Prod. Code: FMW-25KC-S

 Product Structure: A

B,1 C,1 D,1 E,2 F,1 G,1

 Master Production Schedule (MPS) for 2 months. Period: from ----- to -----
Period (week) 1 2 3 4 5 6 7 8
Gross Requirements (unit)

 Inventory Status Records:

Stock on Lead Lot Size Safety Unit Cost Open
Item Type ID Item Name
Hand Time (w) units Stock LE/unit Orders
Products A Microwave FMW 2 1000 500 1500
B Electronic Circuit 2 1000 500 250
Raw Materials
(Main Parts)

C Heater 2 1000 500 100

D Front Door Glass 2 1000 500 100
E Fan 2 1000 500 100
F Front Panel 2 1000 500 100
G Sheet Metal Cover 2 1000 500 250

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 161
 Standard Information
Case Study #1:
‫ فضي‬،‫ لتر‬25 ‫ سعة‬،‫ميكروويف فريش‬
Product Name: Microwave Prod. Code: FMW-25KC-S

 Product Structure: A

B,1 C,1 D,1 E,2 F,1 G,1

 Master Production Schedule (MPS) for 2 months. Period: Jan. & Feb. 2019
Period (week) 1 2 3 4 5 6 7 8
Gross Requirements (unit) 0 500 700 0 800 0 1000 0

 Inventory Status Records:

Stock on Lead Lot Size Safety Unit Cost Open
Item Type ID Item Name
Hand Time (w) units Stock LE/unit Orders
Products A Microwave FMW 1000 2 1000 500 1500 1000, w1
B Electronic Circuit 1000 2 1000 500 250 1000, w1
Raw Materials
(Main Parts)

C Heater 1000 2 1000 500 100 1000, w1

D Front Door Glass 1000 2 1000 500 100 1000, w1
E Fan 1000 2 1000 500 100 1000, w1
F Front Panel 1000 2 1000 500 100 1000, w1
G Sheet Metal Cover 1000 2 1000 500 250 1000, w1
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 162
Material Planning:

Based on this information, discuss the following:

1. Bill of Quantities
2. Direct material cost.
3. Time-phased product structure (max. lead time).
4. MRP tables (Assembly & material plans)
5. Average inventory value.
6. Inventory Turnover.
7. Market, Production and Procurement Plans

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 163
Master Production Schedule (MPS) for 2 months (8 weeks):
Period (week) 1 2 3 4 5 6 7 8 Total
Gross Requirements 0 500 700 0 800 0 1000 0 3000

1) Bill of Quantity (BOQ): Assume

Zero Defects
A 3000

B,1 C,1 D,1 E,2 F,1 G,1

3000 3000 3000 6000 3000 3000

2) Direct Material Cost:

Item B C D E F G
BOM 1 1 1 2 1 1
BOQ (3000 A) 3000 3000 3000 6000 3000 3000
Unit Cost (LE/unit) 250 100 100 100 100 250
Material Cost 750,000 300,000 300,000 600,000 300,000 750,000

Direct Material Cost to produce 3000 A = 3,000,000 LE

Material Cost Per Unit = 1000 LE / unit final product
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 164
3) Time-Phased Product Structure (Product Schedule):
“Maximum Lead Time Per New Order”
Item ID A B C D E F G
Lead Time (weeks/lot) 2 2 2 2 2 2 2

Lead Time in Weeks

Procurement Assembly

B, 2w

C, 2w

D, 2w A, 2w

E, 2w

F, 2w

G, 2w

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 165
3) Time-Phased Product Structure (Product Schedule):
“Maximum Lead Time Per New Order”
Item ID A B C D E F G
Lead Time (weeks/lot) 2 2 2 2 2 2 2

Lead Time in Weeks

Procurement Assembly
1 2 3 4
B, 2w

C, 2w

D, 2w A, 2w

E, 2w

F, 2w

G, 2w

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 166
4) MRP - Assembly Plan (A):
Inventory Data: Period (week) Open 1 2 3 4 5 6 7 8 End
Item : A Gross Requirements 0 500 700 0 800 0 1000 0
On Hand 1000 Schedule Receipts 1000
Safety Stock 500
Lead Time 2 Stock On Hand 1000
Lot Size 1000 Net Requirements

Planned Order Receipt

Schedule Receipts
(1000 , w1) Planned Order Release

Inventory Data: Period (week) Open 1 2 3 4 5 6 7 8 End

Item : A Gross Requirements 0 500 700 0 800 0 1000 0
On Hand 1000 Schedule Receipts 1000
Safety Stock 500
Lead Time 2 Stock On Hand 1000 2000 1500 800 800 1000 1000 1000 1000 1000
Lot Size 1000 Net Requirements 500 500
Planned Order Receipt 1000 1000
Schedule Receipts
(1000 , w1) Planned Order Release 1000 1000

B 1 1000 1000
C 1 1000 1000
BOM
D 1 1000 1000
E 2 2000 2000
… … … …
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 167
4) MRP - Assembly Plan (A):
Inventory Data: Period (week) Open 1 2 3 4 5 6 7 8 End
Item : A Gross Requirements 0 500 700 0 800 0 1000 0
On Hand 1000 Schedule Receipts 1000
Safety Stock 500
Lead Time 2 Stock On Hand 1000 2000 1500 800 800 1000 1000 1000 1000 1000
Lot Size 1000 Net Requirements 500 500
Planned Order Receipt 1000 1000
Schedule Receipts
(1000 , w1) Planned Order Release 1000 1000

5) MRP - Material Plan (B): 1000x1 A 1000x1

Inventory Data: Period (week) Open 1 2 3 4 5 6 7 8 End
Item : B Gross Requirements 1000 1000
On Hand 1000 Schedule Receipts 1000
Safety Stock 500
Lead Time 2 Stock On Hand 1000
Lot Size 1000 Net Requirements

Planned Order Receipt

Schedule Receipts
(1000 , w1) Planned Order Release

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 168
4) MRP - Assembly Plan (A):
Inventory Data: Period (week) Open 1 2 3 4 5 6 7 8 End
Item : A Gross Requirements 0 500 700 0 800 0 1000 0
On Hand 1000 Schedule Receipts 1000
Safety Stock 500
Lead Time 2 Stock On Hand 1000 2000 1500 800 800 1000 1000 1000 1000 1000
Lot Size 1000 Net Requirements 500 500
Planned Order Receipt 1000 1000
Schedule Receipts
(1000 , w1) Planned Order Release 1000 1000

Average inventory quantity for item A = (Open + End) / 2 = 1,000

Average inventory cost for item A = Quantity * Unit Cost = 1,500,000
5) MRP - Material Plan (B): 1000x1 A 1000x1
Inventory Data: Period (week) Open 1 2 3 4 5 6 7 8 End
Item : B Gross Requirements 1000 1000
On Hand 1000 Schedule Receipts 1000
Safety Stock 500
Lead Time 2 Stock On Hand 1000 2000 2000 1000 1000 1000 1000 1000 1000 1000
Lot Size 1000 Net Requirements 500
Planned Order Receipt 1000
Schedule Receipts
(1000 , w1) Planned Order Release 1000

Average inventory quantity for item B = (1000+1000)/2 = 1,000 units

Average inventory cost for item B = 1000 * 250 = 250,000 LE
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 169
Material Plan (C): A
Inventory Data: Period (week) 0 1 2 3 4 5 6 7 8 9
Item : C Gross Requirements 1000 1000
On Hand 1000 Schedule Receipts 1000
Safety Stock 500
Lead Time 2 Stock On Hand 1000 2000 2000 1000 1000 0 1000 1000 1000 1000
Lot Size 1000 Net Requirements 500
Planned Order Receipt 1000
Schedule Receipts
(1000 , w1) Planned Order Release 1000

Average inventory quantity for item C = (1000+1000)/2 = 1000 units

Average inventory cost for item C = 1000 * 100 = 100,000 LE
Material Plan (D):
Inventory Data: Period (week) 0 1 2 3 4 5 6 7 8 9
Item : D Gross Requirements 1000 1000
On Hand 1000 Schedule Receipts 1000
Safety Stock 500
Lead Time 2 Stock On Hand 1000 2000 2000 1000 1000 0 1000 1000 1000 1000
Lot Size 1000 Net Requirements 500
Planned Order Receipt 1000
Schedule Receipts
(1000 , w1) Planned Order Release 1000

Average inventory quantity for item D = (1000+1000)/2 = 1000 units

Average inventory cost for item D = 1000 * 100 = 100,000 LE

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 170
4) MRP - Assembly Plan (A):
Inventory Data: Period (week) Open 1 2 3 4 5 6 7 8 End
Item : A Gross Requirements 0 500 700 0 800 0 1000 0
On Hand 1000 Schedule Receipts 1000
Safety Stock 500
Lead Time 2 Stock On Hand 1000 2000 1500 800 800 1000 1000 1000 1000 1000
Lot Size 1000 Net Requirements 500 500
Planned Order Receipt 1000 1000
Schedule Receipts
(1000 , w1) Planned Order Release 1000 1000

Material Plan (E): 1000x2 A 1000x2

Inventory Data: Period (week) Open 1 2 3 4 5 6 7 8 End
Item : E Gross Requirements 2000 2000
On Hand 1000 Schedule Receipts 1000
Safety Stock 500
Lead Time 2 Stock On Hand 1000 2000 2000 1000 1000 1000 1000 1000 1000 1000
Lot Size 1000 Net Requirements 500 1500
Planned Order Receipt 1000 2000
Schedule Receipts
(1000 , w1) Planned Order Release 1000 2000

Average inventory quantity for item E = (1000+1000)/2 = 1000

Average inventory cost for item E = 1000 * 200 = 200,000
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 171
Material Plan (E): 1000x2 A 1000x2
Inventory Data: Period (week) 0 1 2 3 4 5 6 7 8 9
Item : E Gross Requirements 2000 2000
On Hand 1000 Schedule Receipts 1000
Safety Stock 500
Lead Time 2 Stock On Hand 1000 2000 2000 0 1000 -1000 1000 1000 1000 1000
Lot Size 1000 Net Requirements 500 1500
Planned Order Receipt 1000 2000
Schedule Receipts
(1000 , w1) Planned Order Release 1000 2000

Average inventory quantity for item E = (1000+1000)/2 = 1000 units

Average inventory cost for item E = 1000 * 200 = 200,000 LE
Material Plan (F):
Inventory Data: Period (week) 0 1 2 3 4 5 6 7 8 9
Item : F Gross Requirements 1000 1000
On Hand 1000 Schedule Receipts 1000
Safety Stock 500
Lead Time 2 Stock On Hand 1000 2000 2000 1000 1000 0 1000 1000 1000 1000
Lot Size 1000 Net Requirements 500
Planned Order Receipt 1000
Schedule Receipts
(1000 , w1) Planned Order Release 1000

Average inventory quantity for item F = (1000+1000)/2 = 1000 units

Average inventory cost for item F = 1000 * 100 = 100,000 LE

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 172
 Inventory Policy (Planned Order Release)
(When to order? & How much to order?)

Period (week)
Item
1 2 3 4 5 6 7 8
A 1,000 1,000
B 1,000
C 1,000
D 1,000
E 1,000 2,000
F 1,000
G 1,000

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 173
6) Average Inventory Value:
Item Average Unit Cost Total Value
Item Type Item Name
ID Level (unit) (LE/unit) (LE)
B Electronic Circuit 1000 250 250,000
C Heater 1000 100 100,000
Raw D Front Door Glass 1000 100 100,000
Materials E 1000 200 200,000
Fan
F Front Panel 1000 100 100,000
G Sheet Metal 1000 250 250,000

Work In
Process

Final A Microwave FMW 1000 1500 1,500,000

Products
Average Inventory Value 2,500,000

7) Inventory Turnover = Annual Cost of Sales / Average Inventory Value

Assume, Annual Cost of Sales = Cost of 2 Months * 6
Annual Cost of Sales = (3000 * 1500) * 6 = 27,000,000 LE
Inventory Turnover = 27,000,000 / 2,500,000 = 10.8 = 11 turns / year
Inventory Weeks of supply = 52 weeks / 10.8 turns = 4.8 = 5 weeks/turn
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 174
8) Market, Production and Procurement Plans: Summary Report
Market Plan: Item : A Lead Time: 2 weeks Unit Cost of A : 1500 LE/unit
Period (Weeks) 1 2 3 4 5 6 7 8
Gross Requirements for A 0 500 700 0 800 0 1000 0

Budget, 1000 LE 750 1050 1200 1500

Production Plan:
Item : A Lead Time: 2 weeks Lot Size: 1000 Unit Cost: 1500 LE/unit

Period (Weeks) 0 1 2 3 4 5 6 7 8
Planned Order Receipt 1000 1000
Planned Order Release 1000 1000
Budget, 1000 LE 1500 1500

Procurement Plan:
Item : B Lead Time: 2 weeks Lot Size: 1000 Unit Cost: 250 LE/unit Supplier: xxx

Period (Weeks) 0 1 2 3 4 5 6 7 8
Planned Order Receipt 1000
Planned Order Release 1000
Budget, 1000 LE 250
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 175
Case Study #2: ‫ فضي‬،‫ لتر‬25 ‫ سعة‬،‫ميكروويف فريش‬
Product Name: Microwave Prod. Code: FMW-25KC-S

 Product Structure: A

B,1 C,1 D,1 E,2 F,1 G,1

 Master Production Schedule (MPS) for 2 months (8 weeks):

Period (week) 1 2 3 4 5 6 7 8
Gross Requirements (unit) 0 1000 0 1000 0 1000 0 1000
 Inventory Status Records:
Item Stock on Lead Lot Size Safety Open Unit Cost
ID Item Name
Type Hand Time (w) units Stock Orders LE/unit
Products A Microwave FMW 1000 2 1000 500 1000, w1 2000
B Electronic Circuit 2000 3 1500 500 1500, w1 300
Raw Materials
(Main Parts)

C Heater 1000 1 1000 500 1000, w1 150

D Front Door Glass 1500 2 1000 500 1000, w1 150
E Fan 1000 1 1000 500 1000, w1 150
F Front Panel 2000 3 1500 500 1500, w1 150
G Sheet Metal 1000 1 1000 500 1000, w1 300
Based on this information, discuss the following:
1. Annual Bill of Quantities
Material 2. Direct material cost.
3. Time-phased product structure (lead time cycle).
Planning 4. MRP tables (Assembly & material plans)
5. Average inventory value.
6. Inventory Turnover.
SCM 7. Supply
Market,Chain Management
Production Best Practice
and Procurement Plans - Dr. Attia Gomaa - 2022 176
Case Study #3:
Product Name: Pump Prod. Code: DX4vy19
 Product Structure: A

B,1 C,1 D,1 E,1 F,1 G,2 H,2 I,1

 Master Production Schedule (MPS) (12 months):

Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements 0 500 1500 0 1000 1000 2000 0 1500 1500 0 1000

 Inventory Status Records:

Item Stock on Lead Lot Size Safety Open Unit Cost
ID Item Name
Type Hand Time (w) units Stock Orders LE/unit
Products A Final Product 1000 2 1000 500 0
B Casing 1000 2 1000 500 0
C Impeller 1000 2 1000 500 0
Raw Materials
(Main Parts)

D Impeller nut 1000 2 1000 500 0

E Shaft 1000 2 1000 500 0
F Stuffing box 1000 2 1000 500 0
G Bearing 2000 2 1000 500 0
H Wearing ring 2000 2 1000 500 0
I Shaft sleeve 1000 2 1000 500 0

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 177
 MRP Applications – Multi Products Single Item
Case Study #4:

Product Name: XX Packing

A B

5 Kg 3 Kg

5C 3C
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 178
Case Study #4-A:
A company produces two products A and B that are made from
a component C. Each A consists of 5 C’s. Each B consists of 3 C’s.
 Annual Master Production Schedule (MPS):
Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 400 0 400 0 400 0 400 0 0
Gross Requirements for B 0 0 400 0 400 0 400 0 400 0 400 0
 Inventory Status Records:
Stock on Lead Time Lot Size Safety Open Unit Cost
Item Type ID
Hand (month) (units) Stock Orders (LE/unit)
A 1000 1 1000 200 0 1500
Products
B 1000 1 1000 200 0 1000
Materials C 1000 1 1000 200 1000, m1 200

Based on this information, discuss the following:

Material a) Calculate direct material cost for each product.
Planning
b) Construct MRP tables (Assembly & material plans)
c) Inventory turnover & inventory weeks of supply

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 179
 Annual Master Production Schedule (MPS):
Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 400 0 400 0 400 0 400 0 0
Gross Requirements for B 0 0 400 0 400 0 400 0 400 0 400 0

Bill of Quantity (BOQ):

A B

C,5 C,3

 Annual Quantity:
A = 2000 B = 2000 C = 5 A + 3 B = 10000 + 6000 = 16000

 Direct Material Cost for each product:

Direct Material Cost to produce 2000 A = 10000 C = 10000 * 200 = 2,000,000 LE

Unit Material Cost = 1,000 LE/unit A

Direct Material Cost to produce 2000 B = 6000 C = 6000 * 200 = 1,200,000 LE

Unit Material Cost = 600 LE/unit B

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 180
MRP Tables:
Item : A On Hand 1000 Safety Stock 200 Lead Time 1 Lot Size 1000 S. Rec. (0)
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross Req. for A 0 400 0 400 0 400 0 400 0 400 0 0
Schedule Receipts
Stock On Hand 1000
Net Requirements
P. Order Receipt
P. Order Release

Item : B On Hand 1000 Safety Stock 200 Lead Time 1 Lot Size 1000 S. Rec. (0)
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross Req. for B 0 0 400 0 400 0 400 0 400 0 400 0
Schedule Receipts
Stock On Hand 1000
Net Requirements
P. Order Receipt
P. Order Release

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 181
MRP Tables:
Item : A On Hand 1000 Safety Stock 200 Lead Time 1 Lot Size 1000 S. Rec. (0)
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross Req. for A 0 400 0 400 0 400 0 400 0 400 0 0
Schedule Receipts
Stock On Hand 1000 1000 600 600 200 200 800 800 400 400 1000 1000 1000
Net Requirements 400 200
P. Order Receipt 1000 1000
P. Order Release 1000 1000

Item : B On Hand 1000 Safety Stock 200 Lead Time 1 Lot Size 1000 S. Rec. (0)
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross Req. for B 0 0 400 0 400 0 400 0 400 0 400 0
Schedule Receipts
Stock On Hand 1000 1000 1000 600 600 200 200 800 800 400 400 1000 1000
Net Requirements 400 200
P. Order Receipt 1000 1000
P. Order Release 1000 1000

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 182
MRP Tables:

Item : C On Hand 1000 Safety Stock 200 Lead Time 1 Lot Size 1000 S. Rec. (1000,m1)
Period (month) Open 1 2 3 4 5 6 7 8 9 10 11 12
A B A B
1000 1000 1000 1000
*5 *3 *5 *3
= = = =
Gross Req. for C 5000 3000 5000 3000
Schedule Receipts 1000
Stock On Hand 1000
Net Requirements
P. Order Receipt
P. Order Release

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 183
MRP Tables:

Item : C On Hand 1000 Safety Stock 200 Lead Time 1 Lot Size 1000 S. Rec. (1000,m1)
Period (month) Open 1 2 3 4 5 6 7 8 9 10 11 12
A B A B
1000 1000 1000 1000
*5 *3 *5 *3
= = = =
Gross Req. for C 5000 3000 5000 3000
Schedule Receipts 1000
Stock On Hand 1000 2000 2000 2000 2000 1000 1000 1000 1000 1000 1000 1000 1000
Net Requirements 3200 2200 4200 2200
P. Order Receipt 4000 3000 5000 3000
P. Order Release 4000 3000 5000 3000

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 184
 Inventory Policy (Planned Order Release)
(When to order? & How much to order?)
Period (month)
Item
1 2 3 4 5 6 7 8 9 10 11 12
A 1000 1000
B 1000 1000
C 4000 3000 5000 3000

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 185
Average Inventory Value:
Item Item Average Unit Cost Total Value
Item Name
Type ID Level (unit) (LE/unit) (LE)
Raw C C 1,308 200 261,538
Materials

Work In
Process

Final A A 692 1,500 1,038,462

Products B B 692 1,000 692,308
Average Inventory Value 1,992,308

Inventory Turnover = Annual Cost of Sales / Average Inventory Value

Annual Cost of Sales = (2000 * 1500 + 2000 * 1000) = 5,000,000 LE

Inventory Turnover = 5,000,000 / 1,992,308 = 2.51 turns / year

Inventory Weeks of supply = 52 weeks / 2.51 turns = 20.7= 21 weeks/turn

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 186
Market Plan: Unit Cost of A : 1500 LE/unit Unit Cost of A : 1000 LE/unit
Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 400 0 400 0 400 0 400 0 0
Gross Requirements for B 0 0 400 0 400 0 400 0 400 0 400 0
Budget, M.LE 0.6 0.4 0.6 0.4 0.6 0.4 0.6 0.4 0.6 0.4
Production Plan:
Item : A Lead Time: 1 month Lot Size: 1000 Unit Cost: 1500 LE/unit
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
P. Order Receipt 1000 1000
P. Order Release 1000 1000
Budget, M.LE 1.5 1.5
Item : B Lead Time: 1 month Lot Size: 1000 Unit Cost: 1000 LE/unit
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
P. Order Receipt 1000 1000
P. Order Release 1000 1000
Budget, M.LE 1.0 1.0
Procurement Plan:
Item : C Lead Time: 1 month Lot Size: 1000 Unit Cost: 200 LE/unit Supplier: xxx
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
P. Order Receipt 4000 3000 5000 3000
P. Order Release 4000 3000 5000 3000
SCM M.LE Supply Chain Management0.8
Budget,
Best Practice - Dr. Attia Gomaa - 2022
0.6 1.0 0.6 187
Case Study #4-B:
A company produces two products A and B that are made from
a component C. Each A consists of 5 C’s. Each B consists of 3 C’s.
 Annual Master Production Schedule (MPS):
Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 400 0 400 0 400 0 400 0 0
Gross Requirements for B 0 0 400 0 400 0 400 0 400 0 400 0

 Inventory Status Records:

Stock on Lead Time Lot Size Safety Open Unit Cost
Item Type ID
Hand (month) (units) Stock Orders (LE/unit)
A 1000 1 1000 200 0 1500
Products
B 1000 1 1000 200 0 1000
Materials C 1000 1 LFL 200 1000, m1 200

Based on this information, discuss the following:

Material a) Calculate direct material cost for each product.
Planning
b) Construct MRP tables (Assembly & material plans)
c) Inventory turnover & inventory weeks of supply

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 188
MRP Tables:
Item : A On Hand 1000 Safety Stock 200 Lead Time 1 Lot Size 1000 S. Rec. (0)
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross Req. for A 0 400 0 400 0 400 0 400 0 400 0 0
Schedule Receipts
Stock On Hand 1000 1000 600 600 200 200 800 800 400 400 1000 1000 1000
Net Requirements 400 200
P. Order Receipt 1000 1000
P. Order Release 1000 1000
Average inventory quantity for item A = 692 units (Average)
Average inventory cost for item A = Quantity * Unit Cost = 1,038,462 LE
Item : B On Hand 1000 Safety Stock 200 Lead Time 1 Lot Size 1000 S. Rec. (0)
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross Req. for B 0 0 400 0 400 0 400 0 400 0 400 0
Schedule Receipts
Stock On Hand 1000 1000 1000 600 600 200 200 800 800 400 400 1000 1000
Net Requirements 400 200
P. Order Receipt 1000 1000
P. Order Release 1000 1000
Average inventory quantity for item B = 692 units (Average)
Average inventory cost for item B = Quantity * Unit Cost = 692,000 LE
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 189
MRP Tables:

Item : C On Hand 1000 Safety Stock 200 Lead Time 1 Lot Size LFL S. Rec. (1000,m1)
Period (month) Open 1 2 3 4 5 6 7 8 9 10 11 12
A B A B
1000 1000 1000 1000
*5 *3 *5 *3
= = = =
Gross Req. for A 5000 3000 5000 3000
Schedule Receipts 1000
Stock On Hand 1000
Net Requirements
P. Order Receipt
P. Order Release

Average inventory quantity for item C = -- units (Average)

Average inventory cost for item C = Quantity * Unit Cost = --- LE

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 190
MRP Tables:

Item : C On Hand 1000 Safety Stock 200 Lead Time 1 Lot Size LFL S. Rec. (1000,m1)
Period (month) Open 1 2 3 4 5 6 7 8 9 10 11 12
A B A B
1000 1000 1000 1000
*5 *3 *5 *3
= = = =
Gross Req. for A 5000 3000 5000 3000
Schedule Receipts 1000
Stock On Hand 1000 2000 2000 2000 2000 200 200 200 200 200 200 200 200
Net Requirements 3200 3000 5000 3000
P. Order Receipt 3200 3000 5000 3000
P. Order Release 3200 3000 5000 3000

Average inventory quantity for item C = 815 units (Average)

Average inventory cost for item C = Quantity * Unit Cost = 163,077 LE

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 191
 Inventory Policy (Planned Order Release)
(When to order? & How much to order?)
Period (month)
Item
1 2 3 4 5 6 7 8 9 10 11 12
A 1000 1000
B 1000 1000
C 3200 3000 5000 3000

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 192
Average Inventory Value:
Item Item Average Unit Cost Total Value
Item Name
Type ID Level (unit) (LE/unit) (LE)
Raw C C 815 200 163,077
Materials

Work In
Process

Final A A 692 1,500 1,038,462

Products B B 692 1,000 692,308
Average Inventory Value 1,893,847

Inventory Turnover = Annual Cost of Sales / Average Inventory Value

Annual Cost of Sales = (2000 * 1500 + 2000 * 1000) = 5,000,000 LE

Inventory Turnover = 5,000,000 / 1,893,847 = 2.64 turns / year

Inventory Weeks of supply = 52 weeks / 2.64 turns = 20 weeks/turn

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 193
Case Study #4-C:
A company produces two products A and B that are made from
a component C. Each A consists of 5 C’s. Each B consists of 3 C’s.
 Annual Master Production Schedule (MPS):
Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 400 0 400 0 400 0 400 0 0
Gross Requirements for B 0 0 400 0 400 0 400 0 400 0 400 0
 Inventory Status Records:
Stock on Lead Time Lot Size Safety Open Unit Cost
Item Type ID
Hand (month) (units) Stock Orders (LE/unit)
A 1000 1 500+ 200 0 1500
Products
B 1000 1 500+ 200 0 1000
Materials C 1000 1 1000+ 200 1000, m1 200

Based on this information, discuss the following:

Material a) Calculate direct material cost for each product.
Planning
b) Construct MRP tables (Assembly & material plans)
c) Inventory turnover & inventory weeks of supply

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 194
Case Study #4-D:
A company produces two products A and B that are made from
a component C. Each A consists of 5 C’s. Each B consists of 3 C’s.
 Annual Master Production Schedule (MPS):
Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 400 0 400 0 400 0 400 0 0
Gross Requirements for B 0 0 400 0 400 0 400 0 400 0 400 0
 Inventory Status Records:
Stock on Lead Time Lot Size Safety Open Unit Cost
Item Type ID
Hand (month) (units) Stock Orders (LE/unit)
A 1000 1 500 to 1000 200 0 1500
Products
B 1000 1 500 to 1000 200 0 1000
Materials C 1000 1 1000 to 2000 200 1000, m1 200

Based on this information, discuss the following:

Material a) Calculate direct material cost for each product.
Planning
b) Construct MRP tables (Assembly & material plans)
c) Inventory turnover & inventory weeks of supply

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 195
Assignment: MRP: Multi Products Multi Items
A company produces two products A and B that are made from two components
C and D. Each A consists of 5 C’s and 4 D’s. Each B consists of 3 C’s and 2 D’s.

 Annual Master Production Schedule (MPS):

Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 400 0 400 0 400 0 400 0 0
Gross Requirements for B 0 0 400 0 400 0 400 0 400 0 400 0

 Inventory Status Records:

Stock on Lead Time Lot Size Safety Open Unit Cost
Item Type ID
Hand (month) (units) Stock Orders (LE/unit)
A 1000 1 1000 200 0 2000
Products
B 1500 1 1000 200 0 1200
C 2000 2 1000 200 1000, m1 200
Materials
D 1000 2 1000 200 1000, m1 100
Based on this information, discuss the following:
a) Calculate direct material cost for each product.
b) Construct MRP tables (assembly & material plans)
c) Inventory turnover & inventory weeks of supply
d) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 196
Case Study #7: Assignment
A company produces two products A and B that are made from two components
C and D. Each A consists of 5 C’s and 4 D’s. Each B consists of 3 C’s and 2 D’s.
 Market Information:
Unit Price Annual Sales of the Market
Item Type ID
(LE/unit) (Units/year)
A 2500 9,000
Products
B 1600 15,000
 Annual Master Production Schedule (MPS):
Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 300 0 400 0 300 0 400 0 0
Gross Requirements for B 0 0 500 0 400 0 500 0 400 0 500 0

 Inventory Status Records:

Stock on Lead Time Lot Size Safety Open Unit Cost
Item Type ID
Hand (month) (units) Stock Orders (LE/unit)
A 1000 1 1000 300 0 2000
Products
B 1500 1 500 200 0 1200
C 2000 2 2000 500 1000, M#2 200
Materials
D 1000 2 LFL 400 1000, M#3 100
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 197
 Based on this information, discuss the following:
a) Calculate direct material cost for each product.
b) Construct MRP tables (Assembly & material plans)
c) Inventory turnover & inventory weeks of supply
d) Profit and value-added ratios
e) Market share ratio
f) Objectives and Recommendations for the next period

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 198
 Annual Master Production Schedule (MPS):
Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 300 0 400 0 300 0 400 0 0
Gross Requirements for B 0 0 500 0 400 0 500 0 400 0 500 0

Bill of Quantity (BOQ): A B

C,5 D,4 C,3 D,2

 Annual Quantity:
A = 1,800 B = 2,300 C = 5 A + 3 B = 5*1,800 + 3*2,300 = 15,900
D = 4 A + 2 B = 4*1,800 + 2*2,300 = 11,800

 Direct Material Cost for each product:

Direct Material Cost to produce 1,800 A = 1,800 (5 C + 4 D)

= 9,000 C + 7,200 D = 9,000 *200 + 7,200 * 100 = 2,520,000 LE
Unit Material Cost = 1,400 LE/unit A

Direct Material Cost to produce 2,300 B = 2,300 (3 C + 2 D)

= 6,900 C + 4,600 D = 6,900 *200 + 4,600 * 100 = 1,840,000 LE
Unit Material Cost = 800 LE/unit A
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 199
MRP Tables:
Item : A On Hand 1000 Safety Stock 300 Lead Time 1 Lot Size 1000 S. Rec. (0)
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross Req. for A 0 400 0 300 0 400 0 300 0 400 0 0
Schedule Receipts
Stock On Hand 1000 1000 600 600 300 300 900 900 600 600 1200 1200 1200
Net Requirements 400 100
P. Order Receipt 1000 1000
P. Order Release 1000 1000
Average inventory quantity for item A = 800 units (Average)
Average inventory cost for item A = Quantity * Unit Cost = 1,600,000 LE
Item : B On Hand 1500 Safety Stock 200 Lead Time 1 Lot Size 500 S. Rec. (0)
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross Req. for B 0 0 500 0 400 0 500 0 400 0 500 0
Schedule Receipts
Stock On Hand 1500 1500 1500 1000 1000 600 600 600 600 200 200 200 200
Net Requirements 100 700
P. Order Receipt 500 500
P. Order Release 500 500
Average inventory quantity for item B = 746 units (Average)
Average inventory cost for item B = Quantity * Unit Cost = 895,200 LE
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MRP Tables:

Item : C On Hand 2000 Safety Stock 500 Lead Time 2 Lot Size 2000 S. Rec. (1000,m2)
Period (month) Open 1 2 3 4 5 6 7 8 9 10 11 12
A B A B
1000 500 1000 500
*5 *3 *5 *3
= = = =
Gross Req. for A 5000 1500 5000 1500
Schedule Receipts 1000
Stock On Hand 2000 2000 3000 3000 3000 2000 500 500 500 1500 2000 2000 2000
Net Requirements 2500 5000 500
P. Order Receipt 4000 6000 2000
P. Order Release 4000 6000 2000

Average inventory quantity for item C = 1846 units (Average)

Average inventory cost for item C = Quantity * Unit Cost = 369,200 LE

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Chapter (6):
Inventory Control (Stock Control)
‫مراقبة المخزون‬

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 Inventory Control (Stock Control)

Core Objectives:

Improve
Inventory
Low
Turnover Shortage
Losses

‫مستوي المخزون أقل ما يمكن بدون نواقص‬

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 Inventory Control (Stock Control)
Ford Whitman Harris first presented the familiar
economic order quantity (EOQ) model, 1913
Types of Inventory:
• Raw materials
• Spare Parts
• Work-in-process
• Finished goods; ….

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Inventory Policy:
Max
Order
Demand Receipt
Inventory Level

rate

Q
R
d*LT
SS Min

0
LT Time LT

Q = Order Quantity LT = Lead Time d = Demand rate

R = Reorder Point SS = Safety Stock

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Inventory Policy:

Q = Order Quantity=600 units LT = Lead Time = 2 weeks

R = Reorder Point = 400 units SS = Safety Stock = 200 units

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Economic Order Quantity (EOQ or Qopt)
Ford Whitman Harris first presented the familiar
economic order quantity (EOQ) model, 1913
Annual
cost ($) Qopt = 2CoD / Cc Total Cost

Minimum
total cost Carrying Cost = Cc Q / 2

Ordering Cost = Co D / Q

Qopt Order Quantity, Q

D = Annual Demand Co =Order Cost Cc = Annual carrying cost per-unit

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Economic Order Quantity:
Qopt = 2CoD / Cc
Annual Demand = D = 1000 units
Average Order Cost = $5 / order
Average Holding Cost = H = $ 1 /unit / year Qopt = 2*5*1000/1

= 100 units
Order Number of Annual Average Annual Annual
Min.
Quantity orders Order Stock Holding Inventory
Cost
Q = D/Q Cost = Q/2 Cost Cost
50 20 100 25 25 125
100 10 50 50 50 100 *
200 5 25 100 100 125
… … … … … …
500 2 10 250 250 260
… … … … … …
1000 1 5 500 500 505

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SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 209
Economic Order Quantity:
Qopt = 2CoD / Cc
Annual Demand = D = 1000 units
Order Cost = $5 / order Qopt = 2*5*1000/1
Holding Cost = H = $ 1 /unit / year
Supplier Lot Size = 80 units = 100 units

Order Number of Annual Average Annual Annual

Min.
Quantity orders Order Stock Holding Inventory
Cost
Q = D/Q Cost = Q/2 Cost Cost
1000/80=
80 12.5 = 13
13*5 = 65 80/2 = 40 40*1=40 105 *
100 10 50 50 50 100
1000/160=
160 6.25 = 7
7*5 = 35 160/2 = 80 80*1=80 115

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Economic Order Quantity:
Qopt = 2CoD / Cc
Annual Demand = D = 1000 units
Order Cost = $5 / order Qopt = 2*5*1000/1
Holding Cost = H = $ 1 /unit / year
= 100 units
Holding Cost

Constant ? Variable ?

Order Cost

Constant ? Variable ?
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 211
Inventory Policy: For each item
Inventory Level Max

Q
R
d*LT
SS Min

0
LT Time LT

Qopt = D = Annual demand

2CoD / Cc
Co =Order Cost
Cc = Annual carrying cost per-unit
R = SS + d*L SS = Safety Stock = (5 to 10%) Annual Demand

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Example #1: Inventory Control
Item Information:
Equipment: Water Pump Number of Equipment: 60
Item: Bearing (2 units/pump) Item Code: BXX
Item Cost: 1000 $/unit Maintenance Policy: RTF

Inventory Data:
1. Annual demand = 120 unit/year
2. Unit Material Cost = $1000 / unit
3. Average Order Cost = $20 / order
4. Average Carrying Cost per Unit = $3/year
5. Lead Time = 1 Month
Based on this information, discuss the following:
1) Optimal order quantity
2) Number of Orders
3) Reorder level
4) Stock Control Chart
5) Annual Material Cost (Direct)
6) Annual Inventory Cost (Overhead)

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 Inventory Policy: For each item
Max 2CoD / Cc
Qopt =
Inventory Level

Q= 2*20*120/3

Q Q = 40 SS = 0
R
R = SS + d*L
d*LT
= 0 + 10*1 = 10
SS Min
Min = SS = 0
0 Max = Q + SS = 40
LT Time LT
Carrying Cost = Cc Q / 2 = 3*40/2 = 60
Inventory Data:
1. Annual demand = D = 120 unit/year Ordering Cost =Co D / Q =20*120/40= 60
2. Unit Material Cost = $1000 / unit Inventory Cost = 60+60 = 120
3. Order Cost = Co = $20 / order
Direct Material Cost = 120*1000 = 120,000
4. Carrying Cost = Cc = $3/year
5. Lead Time = LT = 1 Month Total Mat. Cost = 120,000+120 = 120,120

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SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 215
Example #2:

Item Information:
Equipment: Water Pump Item: Bearing

Inventory Data:
1. Annual demand = 120 unit/year
2. Unit Material Cost = $1000 / unit
3. Average Order Cost = $20 / order
4. Average Carrying Cost per Unit = $3/year
5. Lead Time = 1 Month
6. Safety Stock = 10 units
7. On Hand = 20 units
8. Lot Size = 24 units (Supplier)

Based on this information, discuss the following:

1) Optimal order quantity 2) Number of Orders
3) Reorder level 4) Stock Control Chart
5) Average Inventory 6) Annual Material Cost
7) Annual Inventory Cost
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 216
Example #3:

1. Annual demand = 1000 unit/year

2. Unit Material Cost = $10 / unit Container
3. Average Order Cost = $20 / order
4. Average Carrying Cost per Unit = $1/year
5. Lead Time = 1 Month

Based on this information, discuss the following:

1) Optimal order quantity
2) Number of Orders
3) Reorder level
4) Stock Control Chart
5) Annual Material Cost
6) Annual Inventory Cost

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SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 218
Example #4: Container

1. Annual demand = 1000 unit/year

2. Unit Material Cost = $120 / unit
3. Average Order Cost = $100 / order
4. Average Carrying Cost per Unit = $10/year
5. Lead Time = 1 week
6. Safety Stock = 50 units
7. Open Inventory = 100 units
8. Schedule Receipts = 100 units, week#1

Based on this information, discuss the following:

1) Optimal order quantity
2) Number of Orders
3) Reorder level
4) Average Inventory
5) Annual Direct Material Cost
6) Annual Inventory Cost
7) End Inventory
8) Stock Control Chart

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 Container
1. Annual demand = 1000 unit/year
2. Unit Material Cost = $120 / unit
3. Average Order Cost = $100 / order
4. Average Carrying Cost per Unit = $10/year
5. Lead Time = 1 week
6. Safety Stock = 50 units
7. Open Inventory = 100 units
8. Schedule Receipts = 100 units, week#1

1) Optimal order quantity = SQR{(2*100*1000)/10} = 141.4 = 142 units

2) Number of Orders = 1000 / 142 = 7.04 = 7 Orders
3) Reorder level = SS + d * LT = 50 + (1000/52)*1 = 69.2 = 70 units
4) Average Inventory = SS + Q/2 = 50 + 142/2 = 121 units
5) Annual Direct Material Cost = Annual Demand * Unit Cost = 1,200,000
6) Annual Inventory Cost = = C * (SS + Q/2) + n * D/Q = 1914
7) End Inventory = Open + n * Q – D = 100 + 7*142 – 1000 = 94

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Inventory Status Table: “Fixed Order Quantity = 142”
Planned Planned Reference Data:
Demand
Week # On Hand Order Order
rate
Release Receipt
Demand rate (d)
= 1000 /52 = 19.2 = 20
(open) 100
1 80 20 Safety Stock (SS)
2 60 20 142 = 50
3 40+142 20 142
Order Quantity
4 162 20 = 142
5 142 20
6 122 20 Lead Time (L) = 1 week
7 102 20
Reorder Level
8 82 20 = SS + d L
9 72 20 = 50 + 20*1 = 70
10 52 20 142
11 42+142 20 142
Number of orders
12 164 20 =7
13 144 20 Average Inventory
….. = 121
52 94 20 Inventory Cost
(end) 94 = 1914

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 Inventory Chart
200

190

180

170
Units
160

150

140

130

120

110

100

90

80

70
R 60

50
SS 40

30

20

10

0 2 4 6 8 10 12 14
Weeks

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Example #5: Container
1. Annual demand = 1000 unit/year
2. Unit Material Cost = $100 / unit
3. Average Order Cost = $10 / order
4. Average Carrying Cost per Unit = $1.5/year
5. Lead Time = 1 Month
6. Safety Stock = 5% Annual Demand
7. Supplier lot size = 50 units/order
8. Open Inventory = 300 units

Based on this information, discuss the following:

1) Optimal order quantity
2) Number of Orders
3) Safety Stock
4) Reorder level
5) Inventory Status Table
6) Stock Control Chart
7) Annual Material Cost (Direct Cost)
8) Annual Inventory Cost (Indirect Cost)
9) End Inventory

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 223
 2Co D 2*10*1000 = 116 units/order
Qopt = =
Cc 1.5 (100 or 150)
Fixed Order Quantity = 100 Units

n = Number of Orders = 1000 / 100 = 10 orders/year

Annual Inventory Cost = n*Co +(SS + Q/2) Cc =10*10+ (50+100/2)*1.5= $ 250
Fixed Order Quantity = 150 Units

n = Number of Orders = 1000 / 150 = 6.7 = 7 orders/year

Annual Inventory Cost = 7*10+ (50+150/2)*1.5= $ 257.5

The Best Order Quantity = 100 Units

“Neglect the open inventory & end inventory”

Annual Material Cost = Annual demand * Unit Cost = 1000 * 100 = $ 100,000
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 224
Inventory Status Table: “Fixed Order Quantity = 100”
Reference Data:
Planned Planned Demand rate (d)
Demand
Month # On Hand Order Order = 1000 /12 = 83.3 = 84
rate
Release Receipt
0 (open) 300 Safety Stock (SS)
1 216 84 = 50

2 132 84 100 Order Quantity

3 48+100 84 100 = 100
4 64 84 100
Lead Time (L) = 1
5 -19+100 83 100 100
6 -2+100 83 100 100 Reorder Level
7 15+100 83 100 100 = SS + d L
= 50 + 84*1 = 134
8 32+100 83 100 100
9 49+100 83 100 Number of orders
=9
10 66 83 100 Average Inventory
11 -17+100 83 100 100 = (300+100)/2 = 200
12 0+100 83 100 100 Inventory Cost
= 9*10+200*1.5= 390
1 (end) 100 100
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 225
Stock Control Chart

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 226
Inventory Status Table: “Fixed Order Quantity = 150”
Reference Data:
Planned Planned Demand rate (d)
Demand
Month # On Hand Order Order = 1000 /12 = 83.3 = 84
rate
Release Receipt
0 (open) 300 Safety Stock (SS)
1 216 84 = 50

2 132 84 150 Order Quantity

3 48+150 84 150 = 150
4 114 84 150
Lead Time (L) = 1
5 31+150 83 150 150
6 98+150 83 150 Reorder Level
7 165 83 = SS + d L
= 50 + 84*1 = 134
8 82 83 150
9 -1+150 83 150 Number of orders
=6
10 66 83 150 Average Inventory
11 -17+150 83 150 150 = (300+200)/2 = 250
12 50+150 83 150 Inventory Cost
= 6*10+250*1.5= 435
13 (end) 200
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 227
Stock Control Chart

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 228
Case Study #1 – Inventory Control (Manual & Excel File)
1. Annual Demand = 1000 unit/year Container
2. Unit Material Cost = $120 / unit
3. Average Order Cost = $100 / order
4. Average Carrying Cost per Unit = $10/year
5. Lead Time = 1 week
6. Safety Stock (Min. Stock) = 50 units
7. Open Inventory = 100 units
8. Schedule Receipts (Open Order) = 100 units, week#1
9. Supplier Lot Size (Standard Lot Size) = 60 units

Based on this information, discuss the following:

1) Optimal order quantity 120
2) Number of Orders 9
3) Reorder level (L * d + SS) 70
4) Average Inventory (Q/2 +SS) 110
5) Annual Direct Material Cost 1200
6) Annual Inventory Cost (110*10 + 9*100) = 2000 Q =142
7) End Inventory (100+100+9*120 – 1000) = 280 > 50 (120 , 180)
8) Stock Control Chart (at least 12 Periods) Best 120

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Case Study #2:

MRP & Inventory Control

Product Name: XX Packing

A B

5 Kg 3 Kg

5C 3C
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 230
Case Study #2: Assignment
A company produces two products A and B that are made from
a component C. Each A consists of 5 C’s. Each B consists of 3 C’s.
 Annual Master Production Schedule (MPS):
Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 400 0 400 0 400 0 400 0 0
Gross Requirements for B 0 0 400 0 400 0 400 0 400 0 400 0
 Inventory Status Records:
Inventory Lead Time Lot Size Safety Open Unit Cost
Item Type ID
on Hand (month) (units) Stock Orders (LE/unit)
A 1000 1 1000 200 0 1500
Products
B 1000 1 1000 200 0 1000
Materials C 1000 1 1000 200 1000, m1 200

Based on this information, discuss the following:

1) Construct the material plan by using MRP approach
2) Construct the material plan by using inventory control approach
3) Compare the results between the two approaches.

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 231
 Brainstorming
Safety Stock (SS):

? SS = (5 to 10%) Annual Demand

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 232
Safety Stock (SS): Brainstorming

Case Study #3:

Inventory History 2019
Month Demand (units) Delivery Lead time (Days)
Jan 900 1 38
Feb 1,000 2 37
Mar 800 3 38
Apr 1,100 4 40
May 900 5 33
June 1,200 6 28
July 900 7 37
Aug 1,100 8 36
Sept 1,100 9 36
Oct 1,000 10 27
Nov 800
Dec 1,200 Service Level = 95%

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 233
Safety Stock (SS) Calculation - Normal Distribution Method

SS = Z * SQRT((L * σd^2)+(d * σL)^2)) Excel:

SL = Service Level
R = L * d + SS Z = NORMSINV(SL)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 234
 Service Level (85% to 99%)
Item Criticality Service Probability of
Z
(Shortage Losses) Level % Stockout
Very High 99% 1% 2.33
High 97% 3% 1.88
Medium 95% 5% 1.65
Low 90% 10% 1.28
Very Low 85% 15% 1.04

Dr. Attia Gomaa

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 235
Safety Stock (SS) Calculation - Normal Distribution Method
Example:
Average Demand Rate per week d 60
Demand Standard Deviation σd 7
Average Lead Time (weeks) L 6
Lead-time Standard Deviation σL 17.15
Service Level (85% to 99%) P 95%

SS = Z * SQRT((L * σd^2)+(d * σL)^2))

SS = 1.64 * SQRT((6*7^2)+(60*17.15)^2) = 1688
R = SS + L * d
R = 1688 + 60 * 6 = 2048
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 236
Safety Stock (SS) Calculation - Normal Distribution Method
Case Study #3: Inventory History 2019
Month Demand (units) Delivery Lead time (Days)
Jan 900 1 38
Feb 1,000 2 37
Mar 800 3 38
Apr 1,100 4 40
May 900 5 33
June 1,200 6 28
July 900 7 37
Aug 1,100 8 36
Sept 1,100 9 36
Oct 1,000 10 27
Nov 800
Dec 1,200 Service Level = 95%

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SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 238
Case Study #3– Inventory Control Container
• Unit Material Cost = $100 / unit
• Average Order Cost = $200 / order
• Average Carrying Cost per Unit = $10/year
• Open Inventory = 1000 units
• Supplier Lot Size = 1000 units
• Service Level = 95%
Inventory History 2019
Month Demand (units) Delivery Lead time (Days)
Jan 900 1 38
Feb 1,000 2 37
Mar 800
3 38
Apr 1,100
May 900
4 40
June 1,200 5 33
July 900 6 28
Aug 1,100 7 37
Sept 1,100 8 36
Oct 1,000 9 36
Nov 800 10 27
Dec 1,200

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 239
Based on this information, discuss the following:

a) Optimal order quantity & Number of Orders

b) Safety Stock & Reorder level

c) Average Inventory & Annual Inventory Cost

d) Annual Direct Material Cost

e) End Inventory & Stock Control Chart

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 240
Assignment: Inventory Control:
The stock information for an item is as follows:
Container
• Unit Material Cost = $100 / unit
• Average Order Cost = $200 / order
• Average Carrying Cost per Unit = $10/year
• Open Inventory = 1000 units
• Supplier Lot Size = 1000 units
• Service Level = 95%
Inventory History 2019
Month Demand (units) Delivery Lead time (Days)
Jan 900 1 38
Feb 1,000 2 37
Mar 800 3 38
Apr 1,100 4 40
May 900 5 33
June 1,200 6 28
Based on this information, discuss the following:
a) Optimal order quantity & Number of Orders
b) Safety Stock & Reorder level
c) Average Inventory & Annual Inventory Cost
d) Annual Direct Material Cost
e) End Inventory & Stock Control Chart
f) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 241
 Classification of Materials (ABC Analysis)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 242
Wilfredo Pareto 1848-1923
• Italian Economist

• 1906- “Pareto Optimality”

• “80/20” rule: 80% of the wealth is controlled

by 20% of the people.

• 80/20 rule believed to apply much more

widely

80% of the problems may be

attributed to 20% of the causes.
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 243
 Pareto Principle (Rule 80/20)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 244
 Pareto Chart (Rule 80/20)
‫قاعدة تحديد األولويات‬

Cost
Safety
Effect
Effect

Defect Repair Customer

# Cost Claims

Repair Defect
Time Severity
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 245
 Example #7:
A company has the following inventory information:
Annual Demand Unit Value
ID
(units) ($/unit)
A 1000 10
B 1000 12
C 2000 3
D 4000 2
E 2000 8
F 1000 4
G 2000 1

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 246
 Annual Demand Unit Value Annual Value
ID
(units) ($/unit) ($1000)
A 1000 * 10 10
B 1000 12 12
C 2000 3 6
D 4000 2 8
E 2000 8 16
F 1000 4 4
G 2000 1 2

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 247
Pareto Chart Rule 80/20

Sorting
ID Total % C%
E 16 27.6 28
B 12 20.7 48
A 10 17.2 66

D 8 13.8 79

C 6 10.3 90

F 4 6.9 97
G 2 3.4 100
Total 58 100 100%

$/#
Rule 80/20 79 / 57

79% of the problems defects is controlled by 57% of the root causes.

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 248
Classifying Items as ABC

% Annual $ Usage Class % $ Vol % Items

100 A 70-80 15-20
B 15-20 20-30
80
C 5-10 50-60
60
40
A
B
20 C
0
0 50 100
% of Inventory Items

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 249
Example #8:

A company has the following inventory information:

PART UNIT COST ANNUAL USAGE

P01 $ 60 90
P02 350 40
P03 30 130
P04 80 60
P05 30 100
P06 20 180
P07 10 170
P08 320 50
P09 510 60
P10 20 120

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 250
ABC Classification

TOTAL % OF TOTAL % OF TOTAL

PART PART
VALUE UNIT
VALUECOSTQUANTITY
ANNUAL USAGE
% CUMMULATIVE
P09 1
$30,600 $ 60
35.9 6.0 90 6.0
P08 16,000
2 18.7
350 5.0 40 11.0
P02 14,000 16.4 4.0 15.0
3 30 130
P01 5,400 6.3 9.0 24.0
P04 4
4,800 5.680 6.0 60 30.0
P03 5
3,900 4.630 10.0 100 40.0
P06 6
3,600 4.220 18.0 180 58.0
P05 3,000
7 3.510 13.0 170 71.0
P10 2,400 2.8 12.0 83.0
8 320 50
P07 1,700 2.0 17.0 100.0
9 510 60
$85,400
10 20 120

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 TOTAL % OF TOTAL % OF TOTAL
PART PART
VALUE UNIT
VALUECOSTQUANTITY
ANNUAL USAGE
% CUMMULATIVE
P09 1
$30,600 $ 60
35.9 6.0 90 6.0
P08 16,000
2 18.7
350 5.0 A
40 11.0
P02 14,000 16.4 4.0 15.0
3 30 130
P01 5,400 6.3 9.0 24.0
P04 4
4,800 5.680 6.0 60 30.0
B
P03 5
3,900 4.630 10.0 100 40.0
P06 6
3,600 4.220 18.0 180 58.0
P05 3,000
7 3.510 13.0 170 71.0
P10 2,400
8 2.8
320 12.0 C
50 83.0
P07 1,700 2.0 17.0 100.0
9 510 60
$85,400
10 20 120
% OF TOTAL % OF TOTAL
CLASS ITEMS VALUE QUANTITY
A 09, 08, 02 71.0 15.0
B 01, 04, 03 16.5 25.0
C 06, 05, 10, 07 12.5 60.0
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 252
 % OF TOTAL % OF TOTAL
CLASS ITEMS VALUE QUANTITY
A 09, 08, 02 71.0 15.0
B 01, 04, 03 16.5 25.0
C 06, 05, 10, 07 12.5 60.0

100 – C
B
80 –
% of Value

60 –
A
40 –

20 –

0 |– | | | | |
0 20 40 60 80 100
% of Quantity
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 253
Excel File:

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 254
Case Study #5 - ABC Classification
A company has the following inventory information:

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 255
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 256
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 257
Item Annual Usage ($) Percentage of Total $ Cumulative Percentage of Total $ Item Classification
106 16,500 34.4 34.4 A
110 12,500 26.1 60.5 A
115 4500 9.4 69.9 B
105 3200 6.7 76.6 B
111 2250 4.7 81.3 B
104 2000 4.2 85.5 B
114 1200 2.5 88 C
107 1000 2.1 90.1 C
101 960 2 92.1 C
113 875 1.8 93.9 C
103 750 1.6 95.5 C
108 600 1.3 96.8 C
112 600 1.3 98.1 C
102 500 1 99.1 C
109 500 1 100.1 C
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• The A items (106 and 110) account for 60.5% of the value and 13.3% of the items
• The B items (115,105,111,and 104) account for 25% of the value and 26.7% of the items
• The C items make up the last 14.5% of the value and 60% of the items
• How might you control each item classification? Different ordering rules for each?

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Chapter (7):
Procurement & Logistic Planning
2
1 3
√ Right Quality
Right Vendor Right Quantity

Procurement
Plan
Right Time
Right Price
5 4

Price is not the primary determining factor in choosing a vendor.

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 Material Supplier Selection
Factors to be considered in choosing a supplier
1) Material Quality 2) Supplier Quality 3) Cost
1) Material Quality/Specs 11) Delivery Performance
2) Design / Size / Dims 12) Material Availability Price of
3) Processing Quality
Materials
13) Supplier Brand
4) Operating Conditions 14) Supplier Profile Payment
5) Material Yield 15) Service & Support Method
6) Material Certifications 16) Financial Position
7) HSE Information 17) Main Suppliers
8) Shipping Cost 18) Supplier Capacity
9) Material Source 19) Supplier Location
10) Warranty Period 20) Relations

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 Material Supplier Selection
Most Effective 10 Parameters (>80% Materials)

1) Material Quality 2) Supplier Quality 3) Cost

1) Material Quality/Specs 6) Supplier Profile
Price of
2) Material Yield 7) Delivery Performance Materials
3) Material Certifications
8) Service & Support Payment
4) HSE Information Method
25%
5) Shipping Cost

75%

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 Material Supplier Selection

(At Least 3 Parameters)

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 Vendor / Supplier Selection
Cost-Benefit Analysis (Selection Tools):

3 Methods

M1 Max. (Benefits Evaluation / Cost)

M2 Point Cost = Min. (Cost / Benefits Evaluation)

Equivalent Price ‫السعر المكافئ‬

M3 Max. (Benefits Evaluation + Cost Evaluation) √

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Example #1: Supplier Evaluation:

Summary Data for Alternative Suppliers

Performance Relative Material Material Material

Dimension Weight A B C

Price 40% $6/unit $5/unit $2/unit

Defect 30% 5% defects 1% defects 10% defects

Delivery
30% 95% on time 80% on time 60% on time
Reliability

Based on this information, discuss & select the best supplier.

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Supplier Evaluation:

Performance Relative Material Material Material

Dimension Weight A B C
$6/unit $5/unit $2/unit
Price 40%
--- ---- 40%

5% defects 1% defects 10% defects

Defect 30%
--- 30% ----

Delivery 95% on time 80% on time 60% on time

30%
Reliability 30% ---- ----

Total 100%

Rank

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Supplier Evaluation:

Performance Relative Material Material Material

Dimension Weight A B C
$6/unit $5/unit $2/unit
Price 40%
40(2/6)=13.3 40(2/5)=16 40%

5% defects 1% defects 10% defects

Defect 30%
30(1/5)=6 30% 30(1/10)=3

Delivery 95% on time 80% on time 60% on time

30%
Reliability 30% 30(80/95)=25 30(60/95)=19

Total 100% 49.3 71.0 62.0

Rank 3 1 2

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Supplier Evaluation:

Performance Relative Material Material Material

Dimension Weight A B C
$6/unit $5/unit $2/unit
Price 40%
40(2/6)=13.3 40(2/5)=16 40%

95% Quality 99% Quality 90% Quality

Quality 30%
28% 30% 27%

Delivery 95% on time 80% on time 60% on time

30%
Reliability 30% 30(80/95)=25 30(60/95)=19

Total 100% 71% 71% 86%

Rank

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Star Diagram /
Quality
Radar Chart / 10
Spider Diagram:

Target

C
Price 10 Delivery
10

Conclusion: Total Score (Target 100%)

A (47.7%) B (70%) C (61%)
Best Supplier: B
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Example #3: Supplier Evaluation:
Summary Data for Alternative Suppliers
Performance Relative
A B C
Dimension Weight

Price 40% $6/unit $5/unit $2/unit

Quality 30% 5% defects 1% defects 10% defects

Delivery 30% 95% on time 80% on time 60% on time
Reliability
Evaluation Policy:
Excellent Very good Good Accepted Not
Level
10/10 8/10 7/10 6/10 Rejected
Price < 2/unit 2-3 4-5 6-7 >7
Defect % < 2% 2-4 5-6 7-8 > 8%
Delivery > 95% 90-95 85-89 80-84 < 80%

Based on this information, discuss & select the best supplier.

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Supplier Evaluation:
Performance Relative Material Material Material
Dimension Weight A B C

$6/unit $5/unit
Price 40% $2/unit
40(6/10)= 24 40(7/10)= 28
Quality 5% defects 1% defects
30% 10% defects
30(7/10)= 21 30%
Delivery 95% on time 80% on time
30% 60% on time
Reliability 30(8/10)= 24 30(6/10)= 18
Total 100% 69% 76% Rejected due to
2 1 defect & Delivery
Rank

Excellent Very good Good Accepted Not

Level
10/10 8/10 7/10 6/10 Rejected
Price < 2/unit 2-3 4-5 6-7 >7
Defect % < 2% 2-4 5-6 7-8 > 8%
Delivery > 95% 90-95 85-89 80-84 < 80%

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Example #4: Supplier Evaluation:

Summary Data for Alternative Suppliers

Performance Relative Target Accepted Suppliers

Dimension Weight Value Value A B C D

$10 /
Price 20 % ≤ 14 16.67 12.50 11.11 16.67
unit

Quality 1%
40 % ≤1.5% 1.11% 1.25 1.43 1.67
defects

Delivery 100%
40 % ≥70% 70% 70% 80% 60%
Reliability on time

Based on this information, discuss & select the best supplier.

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Example #4: Supplier Evaluation:

Summary Data for Alternative Suppliers

Performance Relative Target Accepted Suppliers

Dimension Weight Value Value A B C D

$10 /
Price 20 % ≤ 14 16.67 12.50 11.11 16.67
unit

Quality 1%
40 % ≤1.5% 1.11% 1.25 1.43 1.67
defects

Delivery 100%
40 % ≥70% 70% 70% 80% 60%
Reliability on time

Based on this information, discuss & select the best supplier.

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Example #4: Supplier Evaluation:

Summary Data for Alternative Suppliers

Performance Relative Target Accepted Suppliers

Dimension Weight Value Value A B C D

$10 12.50 11.11

Price 20 % ≤ 14 16.67 16.67
20% ? ?

Quality 1% def 1.25 1.43

40 % ≤1.5% 1.11% 1.67
40% ? ?

Delivery 100% 70% 80%

40 % ≥70% 70% 60%
Reliability 40% ? ?

Based on this information, discuss & select the best supplier.

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 Suppliers
Performance Relative Target Accepted
Dimension Weight Value Value A B C D

12.50 11.11
$10 / unit $14 /
Price 20 % 16.67 (10/12.5)10 (10/11.11)10 16.67
(10/10) unit
(8/10)*20 (9/10)*20

1.25 1.43
Quality 1% defects 1.5%
40 % 1.11% (1/1.25)10 (1/1.43)10 1.67
(10/10) defects
(8/10)*40 (6.9/10)*40

100%
Delivery 70% 70% 80%
40 % on time 70% 60%
Reliability (10/10) on time (7/10)*40 (8/10)*40

Over 76.0 77.97 Reject

Ranking
Budget 2 1 ed

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Example #5: Supplier Evaluation:

Summary Data for Alternative Suppliers

Performance Target Accepted Relative Materials

Dimension Value Value Weight A B C
Financial
Price $4 / unit ≤6 35% 6 5 4
Criteria
Quality 100% ≥ 90% 40% 97% 96% 92%
Technical
Criteria Delivery
100% ≥ 70% 25% 95% 80% 70%
Reliability

Based on this information, discuss & select the best supplier.

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Supplier Evaluation (Excel File):

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Example #6: Supplier Evaluation:

Summary Data for Alternative Suppliers

Performance Target Accepted Relative Materials

Dimension Value Value Weight A B C
Financial
Price $4 / unit ≤6 30% 6 5 4
Criteria
Quality 100% ≥ 90% 35% 97% 96% 92%
Delivery
100% ≥ 70% 20% 95% 80% 70%
Technical Reliability
Criteria
Service 10/10 ≥7 10% 10 8 7

Support 10/10 ≥7 5% 10 8 6

Based on this information, discuss & select the best supplier.

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Supplier Evaluation:

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Example #7: Supplier Evaluation:
A manager is trying to decide between four alternatives (A, B , C, D) to select the
best supplier with a maximum material price 30 $/unit:
Relative Alternatives
Criteria of selection
weight A B C D
Financial Material Price - 32 $/unit 30 28 26
1- Raw Material
5 Very Good Good Accepted Accepted
Availability
2- Raw Material
Technical 3 Excellent Very Good Very Good Good
Quality
Factors
3- Delivery
3 Excellent Very Good Very Good Good
Performance
(Must)
4- Financial Not
2 Excellent Very Good Good
Accepted
Condition
5- Information
3 Excellent Very Good Very Good Good
System
Evaluation Rule:
Excellent: 100% Very good: 80% Good: 70% Accepted: 60% Not Accepted: 0%

Based on this information, discuss & select the best supplier.

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 Relative Alternatives
Criteria of selection
weight A B C D
Financial 1- Material Price - 32 $/unit 30 28 (min) 26

2- Raw Material Very

5 Good
5*7/10=3.5 3.0 Accepted
Availability
3- Raw Material
Technical 3 Excellent 3*8/10=2.4 2.4 Good
Quality
Factors
4- Delivery
3 Excellent 3*8/10=2.4 2.4 Good
Performance
(Must)
5- Financial Not
2 Excellent 2*8/10=1.6 1.4 Accepted
Condition
6- Information
3 Excellent 3*8/10=2.4 2.4 Good
System
Tech. Evaluation 12.3 (max) 11.6
Max (Cost Benefit Ratio) Over 12.3/30=0.410 11.6/28=0.414
Rejected
Budget
Or Min (Point System) 30/12.3=2.44 28/11.6= 2.41
Ranking 2 1

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Example #8: Supplier Evaluation:
Summary Data for Alternative materials to produce a computer case are
as follows (maximum budget 4000 LE/ton):

Relative Alternatives
Criteria of selection
Weight A B C D
Financial 1) Raw material costs, 1000 LE/ton 12 5.0 4.0 3.5 3.2
2) Processing Cost, LE/ton 6 200 210 220 250
3) Quality Rate, % 6 98% 97% 96% 95%
Technical
Factors 4) Material Yield, % 6 90% 90% 88% 88%
5) Processing time, hour/ton 4 2.0 2.2 3.0 3.5
(Must)
6) Safety of material 3 High Medium Low None
7) Acceptance of material in the market 3 High Medium Low Low

Evaluation Rules: High:10 Medium: 8 Low:6 None: 0

Based on this information, discuss & select the best supplier.

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 Relative Alternatives
Performance Dimensions
Weight A B C D
1) Raw material costs, 1000 LE/ton 12 5.0 10.5 12 3.2
2) Processing Cost, LE/ton 6 200 6 5.71 250
3) Quality Rate, % 6 98% 6 5.93 95%
4) Material Yield, % 6 90% 6 5.86 88%
5) Processing time, hour/ton 4 2.0 4 2.93 3.5
6) Safety of material 3 3 2.40 1.80 None
7) Acceptance of material in the market 3 High 2.40 1.80 Low
Total 40 Over 37.30 36.03 Not
Ranking Budget 1 2 Accep.

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Example #9: Supplier Evaluation:
Summary Data for Alternative materials to produce a computer case are
as follows (maximum budget 4000 LE/ton):

Performance Relative Alternatives

Target
Dimension Weight A B C D
Raw material costs, 1000 LE/ton 12 3.0 5.0 4.0 3.5 3.2
Processing Cost, LE/ton 6 200 200 210 220 250
Quality Rate, % 6 ≥ 98% 98% 97% 96% 95%
Material Yield, % 6 ≥ 90% 90% 90% 88% 88%
Processing time, hour/ton 4 2.0 2.0 2.2 3.0 3.5
Safety of material 3 High High Medium Low None
Acceptance of material in the
3 High High Medium Low Low
market

Evaluation Rules: High:10 Medium: 8 Low:6 None: 0

Based on this information, discuss & select the best supplier.

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 Performance Relative Alternatives
Target
Dimension Weight A B C D
3.0 4.0 3.5
Raw material costs, 1000 LE/ton 12 5.0 3.2
(12) (9.0) (10.3)
200 210 220
Processing Cost, LE/ton 6 200 250
(6) (5.7) (5.4)
≥ 98% 97% 96%
Quality Rate, % 6 98% 95%
(6) (5.9) (5.8)
≥ 90% 90% 88%
Material Yield, % 6 90% 88%
(6) (6.0) (5.9)
2.0 2.2 3.0
Processing time, hour/ton 4 2.0 3.5
(4) (3.6) (3.0)
High
Safety of material 3 High (2.4) (1.8) None
(3)
Acceptance of material in the High
3 High (2.4) (1.8) Low
market (3)
40 40 Over 35 34
Rejected
Rank budget 1 2

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Brainstorming #1: Supplier Evaluation:
A manager is trying to decide between four alternatives (A, B )
to select the best supplier.

Relative Supplier
Criteria of selection
weight A B
Financial 1- Price 40 110 LE/unit 125 LE/unit
Technical 2- Quality 25 Very good Good
Factors 3- Delivery 20 Excellent Very good
4- Service 10 Good Very good
(Must) 5- Support 5 Excellent Very good

Evaluation Rule:
Excellent: 100% Very good: 90% Good: 80% Accepted: 70% Not Accepted: 0%

Based on this information, discuss & select the best supplier.

A = 95.5 B = 86.7 Best Supplier = A

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Assignment: Supplier Evaluation:
A manager is trying to decide between four alternatives (A, B )
to select the best supplier.

Relative Supplier
Criteria of selection
weight A B
Financial 1- Price 40 110 LE/unit 125 LE/unit
Technical 2- Quality 25 Very good Good
Factors 3- Delivery 20 Excellent Very good
4- Service 10 Good Very good
(Must) 5- Support 5 Excellent Very good

Evaluation Rule:
Excellent: 4 Very good: 3 Good: 2 Accepted: 1 Not Accepted: 0

Based on this information, discuss & select the best supplier.

A= B= Best Supplier =
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Brainstorming #2: Supplier Evaluation:
A manager is trying to decide between four alternatives (A, B )
to select the best supplier.

Relative Supplier
Criteria of selection
weight A B
Financial 1- Price 40 110 LE/unit 125 LE/unit
Acceptable Lots = 9 Acceptable Lots = 9
2- Quality
25 Total Lots = 10 Total Lots = 10
Technical
Ontime = 10 Ontime = 8
Factors 3- Delivery
20 Total = 10 Total = 11
Satisfied = 8 Satisfied = 9
(Must) 4- Service
10 Total = 10 Total = 11
Requests = 5 Requests = 6
5- Support
5 Total = 5 Total = 7
Based on this information, discuss & select the best supplier.

A = 95.5 B = 84.7 Best Supplier = A

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Assignment: Procurement & Supplier Selection:
A manager is trying to decide between four alternatives (A, B ) to select the best supplier.

Relative Supplier
Criteria of selection
weight A B
Financial 1- Price 30 110 LE/unit 125 LE/unit
Acceptable Lots = 9 Acceptable Lots = 9
2- Quality
30 Total Lots = 10 Total Lots = 10
Technical
Ontime = 10 Ontime = 8
Factors 3- Delivery
25 Total = 10 Total = 11
Satisfied = 8 Satisfied = 9
(Must) 4- Service
10 Total = 10 Total = 11
Requests = 5 Requests = 6
5- Support
5 Total = 5 Total = 7
Based on this information, discuss the following:
a) Evaluate the suppliers
b) Select the best supplier
c) Construct the procurement plan template
d) Construct the procurement contract template
e) Objectives and recommendations for the next period
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 Procurement Plan Template
Product / Service: Period:
Supplier Item Item Quantity Total Contract Time Delivery .
#
ID ID Type Units Cost ID Days Date .

1) Scope & Definition

5) Warranty
Procurement 2) Parties to the contract
3) Responsibilities 6) Termination
Contract 4) Main Clauses:
• Item Description 7) Law Applicable
• Quantities
(Material • Quality Standards
8)
Supply • Ordering Procedure 9)
• Prices & Total Cost
Contract) • Schedule & Timeline 10)
• Payment terms 11)
• Change Orders
• Claims; … etc. 12)
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 Logistic (Movement & Storage of Materials)
)‫الخدمات اللوجستية (خدمات اإلمداد) هي توريد المواد (نقل وتخزين‬
‫من مناطق اإلنتاج إلي مناطق اإلستهالك‬

9
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 Logistic (Movement & Storage of Materials)
Logistics Management:
Planning, execution and controlling the flow of raw materials,
products and services to point of consumption.

Customers
Vendors

Customer Oriented Approach

(Pipeline Concept)
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Logistic Flow:

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Material Logistic Plan (MLP) / Material Delivery Schedule (MDS)

Product / Project ID: Description: Water Pumps

Period: Jan. 2020 Start Date: 1/1/2020 Finish Date: 31/1/2020

Responsible Person: Procurement Eng. xxxx

Material BOQ Supplier Delivery

Material Material Material Unit Total Responsibl Delivery Lead
Unit Quantity Supplier Location
Type Code Description Cost Cost e Method Time

Spare BXYZ Bearing each 10 100 10,00 SKF Germany Eng. yyy FOB 2
Parts xxxxxx 0$ 0 months

Pump Pxxx Cavity each 2 100 100,0 Nova Italy Eng. yyy CIF 2
Pump 00 $ 00 Rotors months

EXW

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 Market Logistic Plan (MLP) / Market Delivery Schedule (MDS)

Company / Factory: Product Type:

Month: Start Date: Finish Date:

Responsible Person:

Products BOQ Customers Delivery

Product Product Product Unit Total Delivery Lead
Unit Quantity Customer Location Responsible …
Type Code Description Cost Cost Method Time

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Chapter (8):
Operations Planning
Resources
Outputs
(5 M) • Product
• Service
Process • Project

Money
Lean Approach:
1) Standard Information
2) Standard Templets
3) Standard Time
4) Standard Method
Operation management is a systematic approach 5) Value Stream Mapping
6) Capacity Analysis
to transform inputs into services & products 7) Productivity Analysis
8) Motivation Programs; …
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Operation Management:
Operation management is a systematic design, direction, and control of
operations that transform inputs into useful services & products

Suppliers Customers
Management

Inputs (I) Outputs (O)

Resources Products
O Services
I Projects
Productivity Analysis
Performance Management
Various types of processes Departments in the organization

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Process Description
Process / Product / Project / Service, … etc.

Suppliers?
Management Tools? Customers?
Resources? Final Product?

Materials Scope of work (Specs)

Process
Manpower Quality (Fit to use)
1 3
Machines 5 Quantity (Volume)

Methods 2 4
Delivery Time (Due date)

Money (Cost) Price

Objectives? Constraints?

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Operation Management:
It is a systematic approach to Optimize:

(1) Customer Satisfaction (2) Resource Productivity

Right Contract: Right Resources:

• Right Scope of Work • Right Material
• Right Quality • Right Machines
• Right Quantity • Right Manpower
• Right Time (Due date) • Right Method
• Right Price • Right Money (Cost)

Long Term Continuous Improvement

Operation management is a systematic approach
to achieve high quality products at low cost.
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 Lean Approach – Value Added Time Analysis

#3

#1

#2

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 Value Stream Mapping

Production
Supplier Control Customer

1) Information Flow

2) Material Flow

3) Lead Time Flow

Process Process ….
A B ….
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 Value Stream Mapping

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 Value Stream Mapping Symbol

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 Case Study #1: Value Added Time Analysis for Machining Operations

A machining process has the following activities during a work order:

Actual Time Actual Time
# Main Activity # Main Activity
(min) (min)
1 W/o Preparation 30 10 Inspection 15
2 Material Receipt 30 11 Rework 30
3 Material Inspect 30 12 Machine (B) startup 30
4 Material Handling 30 13 Process (B) 60
5 Machine (A) startup 30 14 Inspection 30
6 Process (A) 90 15 Rework 30
7 Failure & Repair 30 16 Packing Process (C) 30
8 Machine (A) Startup 30 17 Material Handling 30
9 Process (A) 60 18 W/o Close-Out 30
Based on this information, discuss the following:
1) Time Analysis 2) Efficiency
3) Value Stream Mapping 4) Comments & Recommendations

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Value Added Times Analysis:

Process: Machining Operations

Type Value Added Non- Value Added Waste
Productive Non-Productive Unnecessary
Description
Activities Activities Activities
Machining (A) W/o Preparation Failure & Repair
Machining (B) Material Receipt Startup after failure
Packing (C) Material Inspect Rework
Material Handling
Activities Machine Startup
Inspection
Material Handling
W/o Close-Out

Policy Optimize Minimize by 50% Eliminate

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Value Added Times Analysis:
Actual Time Value Added Time Analysis Target
# Main Activity
(min) Value Added Non-Value Added Waste Time
1 W/o Preparation 30 30 15
2 Material Receipt 30 30 15
3 Material Inspect 30 30 15
4 Material Handling 30 30 15
5 Machine (A) startup 30 30 15
6 Process (A) 90 90 90
7 Failure & Repair 30 30 0
8 Machine (A) Startup 30 30 0
9 Process (A) 60 60 60
10 Inspection 15 15 7.5
11 Rework 30 30 0
12 Machine (B) startup 30 30 15
13 Process (B) 60 60 60
14 Inspection 30 30 15
15 Rework 30 30 0
16 Packing Process (C) 30 30 30
17 Material Handling 30 30 15
18 W/o Close-Out 30 30 15
Total Time 645 240 285 120 382.5
% 100.0% 37.2% 44.2% 18.6% 59.3%
Time Saving = 645 – 382.5 = 262.5 Hours = 40.7 %  Improve Efficiency 40.7%
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 Value Stream Mapping
Current:
Production
Control
Supplier
MRP Customer

Process Process Process

A B C

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 Value Stream Mapping
Current:
Weekly Production
Order Monthly
Control Order
Supplier
MRP Customer

Daily
Daily Daily Order
Order Order

Process Process Process

A B C

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 Value Stream Mapping
Current:
Weekly Production
Order Monthly
Control Order
Supplier
MRP Customer

Weekly Daily
Daily Daily Order
Order Order Monthly

KAIZEN

Process Process Process

A B C

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 Value Stream Mapping
Current:
Weekly Production
Order Monthly
Control Order
Supplier
MRP Customer

Weekly Daily
Daily Daily Order
Order Order Monthly

KAIZEN

Process Process Process

A B C
Lead Time:
120 135 30 0 60
150 60 30

Lead Time = 645 min Value Added Time = 240 min.

Efficiency = 240 / 645 = 37.2%
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 Value Stream Mapping
Target:
Weekly Production
Order Monthly
Control Order
Supplier
MRP Customer

Weekly Daily
Daily Daily Order
Order Order Monthly

Process Process Process

A B C
Lead Time:
60 22.5 15 0 30
150 60 30

Lead Time = 382.5 min Value Added Time = 240 min.

Efficiency = 240 / 382.5 = 62.7%
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 Improve Recommendations
• Objective:
Improving Value Added Time % from 37% to 62%
Through Reducing Non-Value Added Time
• Planned Period: Quarter (from x to y month)
Improvement Recommendations:
# Recommendations Activities (Top Priorities)
1 Standard Time Process A,B,C (9,13,16)
2 Standard Information W/o (1) , Mat. Receipt (2)
3 Standard Templets W/o (1) , Mat. Receipt (2), Insp. (10)
4 Work Statement & QA/QC 1 , 3 , 10 , 18
5 Planned Maintenance Program Machines A,B,C (9,13,16)
6 Advanced Training Program Productive Labor (9, 10, 13, 16)
7 Visual Stock (5 S) 2, 3, 4, 17
8 Motivation Program All staff

KAIZEN  Change Management

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Assignment: Operation Planning – Lean Approach:
A machining process has the following activities during a work order:
Actual Time Actual Time
# Main Activity # Main Activity
(min) (min)
1 W/o Preparation 20 10 Inspection 15
2 Material Receipt 20 11 Rework 30
3 Material Inspect 20 12 Waiting M. Handling 30
4 Waiting M. Handling 20 13 Material Handling 60
5 Material Handling 20 14 Packing Process (B) 30
6 Machine (A) startup 90 15 Final Inspection 30
7 Process (A) 30 16 Waiting M. Handling 30
8 Routine Maintenance 30 17 Material Handling 20
9 Process (A) 60 18 W/o Close-Out 20

Based on this information, discuss the following:

a) Value added time analysis b) Value stream mapping
c) How to improve the process?
d) Objectives and recommendations for the next period
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 Process Capacity Analysis

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Capacity Analysis: Process Labor
Capacity is a measure of output units/hr (hr/day)
- Design capacity =Maximum capacity = Optimal
maximum output rate or service capacity an
40 12
operation, process, or facility is designed for.

- Effective capacity = Standard = Available

Design capacity minus allowances such as personal 30 10
time, maintenance, and scrap.

- Planned capacity = Target

25 8

- Actual output = Used capacity

20 6
rate of output actually achieved--cannot
exceed effective capacity.
Capacity is a dynamic concept Examples?
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 Capacity Analysis
Operational Management:

Performance = Actual Capacity / Planned capacity 80 to 100%

Quality Rate = (Total units – Rejected) / Total units 90 to 100%

Middle Management:

Efficiency = Actual output / Effective capacity 70 to 90%

Load ratio = Planned Capacity / Effective capacity 70 to 90%

Top Management:
Utilization = Actual output / Design capacity 60 to 80%

Effectiveness = Effective Capacity / Design capacity 60 to 80 %

Bottleneck Problems
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Example:

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Capacity Analysis - Example:
System

A B C
2 min/unit 4 min/unit 3 min/unit

Based on this information, discuss the following:

1) Bottleneck process (Slowest process in the system) =
2) System capacity (Output per hour) = units / hour
3) Through put time (Time spent by unit) = min / unit
4) Capacity utilization (Actual / Maximum)
A ( %) , B ( %) , C ( %), System ( %), Unused ( %)
5) How to improve the capacity utilization?

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 A B C
2 min/unit 4 min/unit 3 min/unit

60 min/2 = 60 min/4= 60 min/3 = 15

30 units/hour 15 units/hour 20 units/hour units/hour

1) Bottleneck process (Slowest process in the system) = B

2) System capacity (Output per hour) = 15 units / hour
3) Through put time (Time spent by unit) = 2 + 4 + 3 = 9 min / unit
4) Capacity utilization (Actual / Maximum)
A (15/30=50%) , B (15/15 = 100%) , C (15/20= 75%),
System (50+100+75)/3 = 75% , Unused(25%)
5) How to improve the capacity utilization?

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Capacity Analysis: Takt time , Cycle time, Lead time
Takt time is the rate at which a finished product needs to be completed in
order to meet customer demand. (Inverse of the demand flow rate “min/unit”)
Cycle time is the period required to complete one cycle of an operation.
(Inverse of the production flow rate “min/unit”)

Lead time is the estimated time between ordering and receiving the product
or service. (Process (A)  Process (B)  ….  Customer )
Takt time = Working time available / Customer demand
Cycle time = Working time available / Actual Production

Lead Time = The total production time from start to finish

Example:
Customer orders 3000 unit in 25 days, (8 hours/day)
Takt time = 4 min / 1 unit

Process (A, 2 min)  Process (B, 4 min)  Process (C, 3 min)

Cycle Time = 4 min / 1 unit ≤ Takt time
Process (A)  Process (B)  Process (C)  Customer
Lead Time = 2 + 4 + 3 = 9 min / unit

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Capacity Analysis - Example:
Customer demand = 80 units Order lead time = 10 days
Working conditions: 8 hours/day
Process A B C D
Process Lead Time (min) 50 40 65 45

Actual Cycle Time = 65 min

Takt time = Working time available / Customer demand
Working time available = 10 days * 8 hours/day * 60 min/hour = 4800 min
Customer demand = 80 units
Takt time = 4800 min / 80 units = 60 min.
Target Cycle Time = 55 min.

65

55

Improvement

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Capacity Analysis - Example:
System

A B C
2 min/unit 4 min/unit 3 min/unit

Process A B C
Process Lead Time (min/unit) 2 4 3

Weekly Customer Demand = 1300 units

Working conditions: 5 days/week & 2 Shifts & 8 hours/shift

Based on this information, discuss the following:

1) Takt time
2) Cycle time
3) Lead Time
4) How to improve the actual cycle time (Target cycle time)

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 Process A B C
Process Lead Time (min/unit) 2 4 3

Weekly Customer Demand = 1300 units

Working conditions: 5 days/week & 2 Shifts & 8 hours/shift

Takt time = Working time available / Customer demand

Working time available = 5 days * 2 Shifts * 8 hours/day * 60 min/hour = 4800 min
Customer demand = 1300 units
Takt time = 4800 min / 1300 units = 3.69 min / unit

Cycle Time = 4 min/unit Target Cycle Time = 3 min/unit

Lead Time (A B  C Customer) = 2+4+3 = 11 min/unit

Actual 4

Optimal 3 Improvement

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Case Study: Material Selection: “Critical Materials”
The production information for welded water tank manufacturing are as follows:
Market Information
Product Code: WT500
Product Description:
Welded water tank open on one side of size 0.5 m× 0.5 m× 0.5 m
is to be fabricated from 1 mm thick plates (carbon steel).
Forecasted Sales Quantity: 240 Units / week
(All dimensions are in mm)

Material Information Raw Materials (Standard Plates)

Raw material code M1 M2
Raw material description 125 cm * 250 cm * 1mm 110 cm * 200 cm * 1mm
Raw material weight; kg/plate 25 17.5
Raw material cost; LE/kg 5.8 6.0
Scrap return value, LE/kg 2 2
Process defect repair repair

Based on this information, discuss the following:

a) Select the best material.
b) Prepare the weekly material plan.
c) Calculate the direct material cost per unit.
d) If the value added factor is 2, estimate the unit price.
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Product Structure = 5 A Sales Quantity: 240 Units / week
Planned Number of Sheets (A) = 240 * 5 = 1200 Sheets

Material Selection: M1: (125 cm * 250 cm * 1mm) = 3.125 m2

1 2 3 4 5 6 7 8 9 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5

Layout : #1 1

2
A
Cutting Outputs: 10 A 3 A A A A
4
(50*50)
5

8
A A A A A
9

10

11

12
Scrap (250*25)

Weekly Material Plan = 1200/10 = 120 Plates (M1 )

Material Yield = (240*5*50*50) / (120*250*125) = 0.8 = 80%
Total Scrap = 120*(2.50*0.25) = 75 m2 Scrap ratio = 20%
Raw Material Cost = 120 * 25 * 5.8 = 17400 LE
Scrap Cost = 75 * (25/3.125) * 2 = 1200 LE
Direct Material Cost = 17400 – 1200 = 16200 LE
Direct Material Cost Per Unit = 16200 / 240 = 67.5 LE / tank
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Product Structure = 5 A Sales Quantity: 240 Units / week
Planned Number of Sheets (A) = 240 * 5 = 1200 Sheets

Material Selection: M2: (110 cm * 200 cm * 1mm) = 2.2 m2

1 2 3 4 5 6 7 8 9 1 1 1 1 1 1 1 1 1 1 2
0 1 2 3 4 5 6 7 8 9 0

Layout : #2 1

Cutting Outputs: 8 A A
3 A A A
4
(50*50)
5

8
A A A A
9

10

11
Scrap (200*10)

Weekly Material Plan = 1200/8 = 150 Plates (M1 )

Material Yield = (240*5*50*50) / (150*200*110) = 0.909 = 90.9 %
Total Scrape= 150*(2.00*0.10) = 30 m2 Scrape ratio = 9.1%
Raw Material Cost = 150 * 17.6 * 6.0 = 15840 LE
Scrap Cost = 30 * (17.6/2.2) * 2 = 480 LE
Direct Material Cost = 15840 – 480 = 15360 LE
Direct Material Cost Per Unit = 15360 / 240 = 64.0 LE / tank
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Raw material code M1 M2
Weekly Material Plan 120 Plates 150 Plates
Weekly Material Weight 3000 kg 2640 kg
Material Yield % 80% 90.9 %
(Max.)
Material Scrap % 20% 9.1 %
(Min.)
Direct Material Cost 16200 LE 15360 LE
Direct Material Cost Per Unit 67.5 LE / tank 64.0 LE / tank
(Min.)

M2 has less scrap and lower cost than M1

M2 is the best materials

Material Value Added Factor = 2

Material Value Added Factor = Unit Price / Unit Material Cost
Unit Price = 2 * 64.0 = 128 LE/tank

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Case Study: Material Selection: “Critical Materials”
The production information for welded water tank manufacturing are as follows:

Market Information
Product Code: WT500
Product Description:
Welded water tank open on one side of size 0.5 m× 0.5 m× 0.5 m
is to be fabricated from 1 mm thick plates (carbon steel).
Forecasted Sales Quantity: 240 Units / week
(All dimensions are in mm)

Material Information Raw Materials (Standard Plates)

Raw material code M2 M3
Raw material description 110 cm * 200 cm * 1mm 100 cm * 200 cm * 1.5mm
Raw material weight; kg/plate 17.5 23.8
Raw material cost; LE/kg 6.0 5.5
Scrap return value, LE/kg 2 2

Based on this information, discuss the following:

a) Select the best material.
b) Prepare the weekly material plan.
c) Calculate the direct material cost per unit.
d) If the value added factor is 2, estimate the unit price.
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Product Structure = 5 A Sales Quantity: 240 Units / week
Planned Number of Sheets (A) = 240 * 5 = 1200 Sheets

Material Selection: M2: (110 cm * 200 cm * 1mm) = 2.2 m2

1 2 3 4 5 6 7 8 9 1 1 1 1 1 1 1 1 1 1 2
0 1 2 3 4 5 6 7 8 9 0

Layout : #2 1

Cutting Outputs: 8 A A
3 A A A
4
(50*50)
5

8
A A A A
9

10

11
Scrap (200*10)

Weekly Material Plan = 1200/8 = 150 Plates (M1 )

Material Yield = (240*5*50*50) / (150*200*110) = 0.909 = 90.9 %
Total Scrape= 150*(2.00*0.10) = 30 m2 Scrape ratio = 9.1%
Raw Material Cost = 150 * 17.6 * 6.0 = 15840 LE
Scrap Cost = 30 * (17.6/2.2) * 2 = 480 LE
Direct Material Cost = 15840 – 480 = 15360 LE
Direct Material Cost Per Unit = 15360 / 240 = 64.0 LE / tank
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Product Structure = 5 A Sales Quantity: 240 Units / week
Planned Number of Sheets (A) = 240 * 5 = 1200 Sheets

Material Selection: M3: (100 cm * 200 cm * 1.5mm) = 2.0 m2

1 2 3 4 5 6 7 8 9 1 1 1 1 1 1 1 1 1 1 2
0 1 2 3 4 5 6 7 8 9 0

Layout : #2 1

Cutting Outputs: 8 A A
3 A A A
4
(50*50)
5

8
A A A A
9

10

Weekly Material Plan = 1200/8 = 150 Plates (M1 )

Material Yield = 100 %
Total Scrape= 0 m2 Scrape ratio = 0%
Raw Material Cost = 150 * 23.8 * 5.5 = 19635 LE
Scrap Cost = 0 LE
Direct Material Cost = 19635 – 0 = 19635 LE
Direct Material Cost Per Unit = 19635 / 240 = 81.81 LE / tank

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Raw material code M2 M3
Weekly Material Plan 150 Plates 150 Plates
Weekly Material Weight 2640 kg
Material Yield % 90.9 %
(Max.)
Material Scrap % 9.1 %
(Min.)
Direct Material Cost 15360 LE
Direct Material Cost Per Unit 64.0 LE / tank 81.81 LE / tank
(Min.)

M2 has less scrap and lower cost than M3

M2 is the best materials

Material Value Added Factor = 2

Material Value Added Factor = Unit Price / Unit Material Cost
Unit Price = 2 * 64.0 = 128 LE/tank

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 334
 (0)
Operation (1)
… etc. Description Network /
Sequence

(7)
Line of (2)
Balance Operation Schedule
Planning
(6) (3)
Resource Material
Loading Plan

(5) (4)
Cost Resource
Plan Plan
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 Operation Planning (Routine Works)
Operation: Assembly Line for a Car x

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 Operation Planning (Routine Works)
Example:
Activity information per unit product
Activity Duration Resource
Predecessors
ID (hours) (Workers) Gantt Chart
A - 2 2 Days

B - 5 2
C A 1 2
D C 4 2
E B 2 2

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 Operation Planning (Routine Works)
Example:
For a production system, the activity
information per unit product is as follows:

Activity Duration
Predecessors
ID (Days)
A - 5
B A 3
C A 4
D B 2
E C 3
F D,E 4

Based on this information; discuss the following for unit product:

1) Network for Unit Product
2) Latest Finish for Each Activity
3) Schedule for Unit Product

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Network per unit product: ID Pred. Days
A - 5
B D B A 3
C A 4
D B 2
A F
E C 3
F D,E 4
C E
ES d EF
Activity ID
3 2 LS TF LF
B D
5 4
A F
4 3
C E

Planned Duration = days Critical Path:

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Network per unit product: ES d EF
Activity ID
LS TF LF
5 3 8 8 2 10
B D
0 5 5 7 2 10 10 2 12 12 4 16
A F
0 0 5 5 4 9 9 3 12 12 0 16
C E
5 0 9 9 0 12

Planned Duration = 16 days Critical Path: A-C-E-F

Latest Finish for Each Activity

A C B D,E F
LF
5 9 10 12 16
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 Duration (days)

Days
Pre.
ID

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

A - 5
B A 3
C A 4
D B 2
E C 3
F D,E 4

Planned Duration = 16 days Critical Path: A-C-E-F

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 Operation Planning (Routine Works)
Example:
For a production system, the activity
information per unit product is as follows:
Critical
Activity Duration Resource Resources
Predecessors
ID (hours) (Workers)
A - 2 4
B - 3 4
C A 2 1
D C 6 4
E B 4 1
F D,E 2 4
Constraints:
Max. # workers = 5 workers Cost Rate = 100 LE/man-hour
Max. duration = 14 hours Bonus / Delay = ±100 LE/hour

Based on this information; discuss the following for unit product:

1) Network 2) Target plan 3) Resource Planning
4) Cost profile 5) Resource loading

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Network per unit product: ID Pred. Hours
A - 2
B - 3
A C D C A 2
D C 6
Start F Finish E B 4
F D,E 2
B E
ES d EF
Activity ID

2 2 6 LS TF LF
A C D
0 2
Star F
t 4
3
B E

Planned Duration = Hours Critical Path:

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Network per unit product: ES d EF
Activity ID
LS TF LF

0 2 2 2 2 4 4 6 10
A C D
0 0 0 2 2 0 4 4 0 10 10 2 12
Star F
0t 0 3 3 3 4 7 10 0 12
B E
3 3 6 6 3 10

Planned Duration = 12 Hours Critical Path: A-C-D-F

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 (Critical Resources)

Hours
ID Pre. Man Hours
1 2 3 4 5 6 7 8 9 10 11 12 13 14

A - 4 2
B - 4 3
C A 1 2
D C 4 6
E B 1 4
F D,E 4 2

# of Workers
Cost Profile
Total Cost

Constraints:
Max. # workers= 5 workers ( 100 LE/man-hour) Max. duration= 14 hours

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 (Critical Resources)

Hours
ID Pre. Man Hours
1 2 3 4 5 6 7 8 9 10 11 12 13 14

A - 4 2 4 4
B - 4 3 4 4 4
C A 1 2 1 1
D C 4 6 4 4 4 4 4 4
E B 1 4 1 1 1 1
F D,E 4 2 4 4

# of Workers 4 4 4 5 5 5 5 5 5 4 4 4 4

Cost Profile 400 400 400 500 500 500 500 500 500 400 400 400 400

Total Cost 5800 & Bonus 100

Constraints:
Max. # workers= 5 workers ( 100 LE/man-hour) Max. duration= 14 hours

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 (Critical Resources)

Hours
Resource Loading
1 2 3 4 5 6 7 8 9 10 11 12 13 14

W1 A A B B B D D D D - - - -
W2 A A B B B D D D D D D F F
W3 A A B B B D D D D D D F F
W4 A A B B B D D D D D D F F
W5 - - - C C E E E E D D F F

# of Workers 4 4 4 5 5 5 5 5 5 4 4 4 4

Cost Profile 400 400 400 500 500 500 500 500 500 400 400 400 400

Total Cost 5800 & Bonus 100

Constraints:
Max. # workers= 5 workers ( 100 LE/man-day) Max. duration= 14 hours

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 Operation Planning (Routine Works)
Example:
For a production system, the activity
information per unit product is as follows: Critical
Resources
Activity Duration Resource
Predecessors
ID (Days) (Workers)
A - 2 2
B - 5 2
C A 1 2
D C 4 2
E B 2 2

Constraints:
Max. # workers = 4 workers Cost Rate = 1,000 LE/man-hour
Max. duration = 8 Hours Bonus / Delay = ±1000 LE/hour

Based on this information; discuss the following for unit product:

1) Network 2) Target plan 3) Resource Planning
4) Cost profile 5) Resource loading

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 (Critical Resources)
Operation: Assembly Line for a Car x
Hours
ID Pre. Days Workers
1 2 3 4 5 6 7 8 9 10

A - - 2
B - - 2
C A A 2
D C C 2
E B B 2

Cost Profile
Total Cost

Constraints:
Max. # workers = 4 workers Cost Rate = 1,000 LE/man-hour
Max. duration = 8 Hours Bonus / Delay = ±1000 LE/hour
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Example – Operation Planning:

Project: Assembly of a Feed Water Pump

Duration Resources
ID Activity Name Pred.
(hours) (Workers)
A10 Receive Bill of Materials (elements, etc.) - 1 2
A11 Check Bill of Materials (elements, etc.) A10 1 2
A12 Isolation (electrical, mechanical, process, etc.) A11 1 2
A13 Shaft Assembly (shaft, bearing, mech. seal, etc.) A12 4 2
A14 Pump Assembly (casing, impeller, seal, etc.) A13 2 2
A15 Motor Assembly (bearing, stator, rotor, etc.) A12 2 2
A16 Final Assembly, final check, housekeeping, … etc. A14,A15 1 2
A17 De-isolation, run rest, … etc. A16 1 2
A18 Check operating conditions, vibration, … etc. A17 1 2

Constraints:
Max. # workers = 4 workers Cost Rate = 100 LE/man-hour
Max. duration = 12 hours Bonus / Delay = ±100 LE/hour

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Project: Assembly of a Feed Water Pump
Duration Resources
ID Pred.
(hours) (Workers)
A10 - 1 2 Optimal:
A11 A10 1 2
Resources:
A12 A11 1 2 Total Effort = 28 man-hours
A13 A12 4 2 Direct Cost = 28*1000 = 28,000 LE (Target)
A14 A13 2 2
A15 A12 2 2 Resources (man) 4 28/12=2.3=3
A16 A14,A15 1 2 Time (hours) 28/4 = 7 12
A17 A16 1 2 Importance Time Resource
A18 A17 1 2

Network / Logic diagram / Process Chart / Method:

Start A10 A11 A12 A13 A14

A16 A17 A18 Finish

A15

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 (Critical Resources)
Project: Assembly of a Feed Water Pump
Duration (Hours)
ID Pred. hours Workers
1 2 3 4 5 6 7 8 9 10 11 12
A10 - 1 2 2
A11 A10 1 2 2
A12 A11 1 2 2
A13 A12 4 2 2 2 2 2
A14 A13 2 2 2 2
A15 A12 2 2 2 2
A16 A14,A15 1 2 2
A17 A16 1 2 2
A18 A17 1 2 2
# of Workers 2 2 2 2 2 4 4 2 2 2 2 2
Cost Profile 200 200 200 200 200 400 400 200 200 200 200 200
Total Cost 28,000 LE
Constraints:
Max. # workers= 4 workers (100 LE/man-hour) Max. duration= 12 Hours
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 (Critical Resources)
Project: Assembly of a Feed Water Pump

Resource Duration (Hours)

(Workers) 1 2 3 4 5 6 7 8 9 10 11 12
W1 A10 A11 A12 A13 A13 A13 A13
W2 A10 A11 A12 A13 A13 A13 A13
W3 A15 A15 A14 A14 A16 A17 A18
W4 A15 A15 A14 A14 A16 A17 A18

# of Workers 2 2 2 2 2 4 4 2 2 2 2 2
Cost Profile 200 200 200 200 200 400 400 200 200 200 200 200
Total Cost 28,000 LE

Constraints:
Max. # workers= 4 workers (100 LE/man-hour) Max. duration= 12 Hours
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Assembly Lines History
• Introduced in 1913 by Henry Ford
• Ford reduced assembly time, of T model,
from 12 hours to two hours and 30 minutes.
Henry Ford
1863-1947
Assembly Line Balancing:
• Is the process of assigning work elements into work stations
without violating precedence relations
• Assembly line balancing can leads to:
• Efficiency improvement
• Productivity improvement
• Elimination of wastes
• Cost reduction or profit maximization
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 Operation Planning (Routine Works)
Case Study: For a production system, the activity
information per unit product is as follows:
Activity Duration
Predecessors
Product: Lath Machines ID (Days / Crew)
A - 2
B A 2
C A 2
D B 1
E C 2
F D,E 2
Constraints:
• Order Production Quantity = 10 units
• Order Working Days = 15 days
• Processing Cost Rate = $1000 / Crew-day

Based on this information; discuss the following:

1) Network for Unit Product 2) Schedule for Unit Product
3) Order Schedule 4) Target Performance at Day #10
5) Number of Crews for Each Activity 5) Order Processing Cost
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 355
Network per unit product: ES d EF
Activity ID
LS TF LF
2 2 4 4 1 5
B D
0 2 2 3 1 5 5 1 6 6 2 8
A F
0 0 2 2 2 4 4 2 6 6 0 8
C E
2 0 4 4 0 6

Planned Duration = 8 days Critical Path: A-C-E-F

A C B D,E F LF
2 4 5 6 8 (days)

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 Duration (days)

Days
Pre.
ID

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

A - 2
B A 2
C A 2
D B 1
E C 2
F D,E 2

Planned Duration = 8 days Critical Path: A-C-E-F

A C B D,E F LF
2 4 5 6 8 (days)

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 Duration (days)

Days
Pre.
ID

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

A - 2
B A 2
C A 2
D B 1
E C 2
F D,E 2
7

Planned Duration = 8 days Critical Path: A-C-E-F

A C B D,E F LF
2 4 5 6 8 (days)

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 Order Production Schedule (Line of Balance)
LF (Days)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

10
Units #

6
F
5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

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 Order Production Schedule (Line of Balance)
LF (Days)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

10
Units #

8
B,C
7
E
6
A D F
5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

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 LF (Days)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

10
Units #

8 B,C
7
E
6
A D F
5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Target Performance A B C D E F
at Day #10 10 9 9 7 6 3

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Number of Crews for Each Activity:
A B C D E F
Crew-days / Unit 2 2 2 1 2 2
Order Production Quantity 10 10 10 10 10 10
Total Crew-days 20 20 20 10 20 20
Latest Start Day 1 4 3 6 5 7
Latest Finish Day 9 12 11 13 13 15
Total Duration (days) 9 9 9 8 9 9
Number of Crews/day 20/9=3 3 3 10/8=2 3 3
Crew Utilization

Order Processing Cost:

A B C D E F
Crew-day / Unit 2 2 2 1 2 2
Total Crew-day 20 20 20 10 20 20
Processing Cost
1000 1000 1000 1000 1000 1000
$ / Crew-day
$ 20,000 20,000 20,000 10,000 20,000 20,000
Total Processing Cost 110,000
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 Operation Planning (Assembly Line Balance)
Case Study: For a production system, the activity
information per unit product is as follows:
Activity Duration
Predecessors
Product: Lath Machines ID (Days / Crew)
A - 5
B A 3
C A 4
D B 2
E C 3
F D,E 4
Constraints:
• Order Production Quantity = 10 units
• Order Working Days = 20 days
• Processing Cost Rate = $1000 / Crew-day

Based on this information; discuss the following:

1) Network for Unit Product 2) Schedule for Unit Product
3) Order Schedule for 20 days 4) Target Performance at Day #13
5) Number of Crews for Each Activity 6) Order Processing Cost
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 363
Network per unit product: ID Pred. Days
A - 5
B D B A 3
C A 4
D B 2
A F
E C 3
F D,E 4
C E
ES d EF
Activity ID
3 2 LS TF LF
B D
5 4
A F
4 3
C E

Planned Duration = days Critical Path:

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 364
Network per unit product: ES d EF
Activity ID
LS TF LF
5 3 8 8 2 10
B D
0 5 5 7 2 10 10 2 12 12 4 16
A F
0 0 5 5 4 9 9 3 12 12 0 16
C E
5 0 9 9 0 12

Planned Duration = 16 days Critical Path: A-C-E-F

Latest Finish:
A C B D,E F
LF
5 9 10 12 16
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 365
 Duration (days)

Days
Pre.
ID

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

A - 5
B A 3
C A 4
D B 2
E C 3
F D,E 4

A C B D,E F LF
5 9 10 12 16 (days)

Planned Duration = 16 days Critical Path: A-C-E-F

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 366
 Order Production Schedule (Line of Balance)
LF (Days)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

10
Units #

5 F
4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

A C B D,E F LF
5 9 10 12 16 (days)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 367
 Order Production Schedule (Line of Balance)
LF (Days)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

10
Units #

5 A C B D,E F
4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

A C B D,E F LF
5 9 10 12 16 (days)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 368
 Order Production Schedule (Line of Balance)
LF (Days)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

10
Units #

5 A C B D,E F
4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Target Performance A B C D E F LF (days)

at Day #13 10 8 10 2 2 0 13
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 369
Number of Crews for Each Activity:
A B C D E F
Crew-days / Unit 5 3 4 2 3 4
Order Production Quantity 10 10 10 10 10 10
Total Crew-days 50 30 40 20 30 40
Latest Start Day 1 10 6 11 10 13
Latest Finish Day 9 14 13 16 16 20
Total Duration (days) 9 5 8 6 7 8
Number of Crews/day 50/9=6 30/5=6 40/8=5 20/6=4 30/7=5 40/8=5

Order Processing Cost:

A B C D E F
Crew-day / Unit 5 3 4 2 3 4
Total Crew-day 50 30 40 20 30 40
Processing Cost
1000 1000 1000 1000 1000 1000
$ / Crew-day
$ 50,000 30,000 40,000 20,000 30,000 40,000
Total Processing Cost $ 210,000

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 Operation Planning (Assembly Line Balance)
Case Study: For a production system, the activity
information per unit product is as follows:
Activity Duration
Predecessors
Product: Lath Machines ID (Days / Crew)
A - 5
B A 3
C A 4
D B 2
E C 3
F D,E 4
Constraints:
• Order Production Quantity = 21 units
• Order Working Days = 26 days
• Processing Cost Rate = $1000 / Crew-day

Based on this information; discuss the following:

1) Network for Unit Product 2) Schedule for Unit Product
3) Order Schedule for 20 days 4) Target Performance at Day #13
5) Number of Crews for Each Activity 6) Order Processing Cost
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 371
Network per unit product: ES d EF
Activity ID
LS TF LF
5 3 8 8 2 10
B D
0 5 5 7 2 10 10 2 12 12 4 16
A F
0 0 5 5 4 9 9 3 12 12 0 16
C E
5 0 9 9 0 12

Planned Duration = 16 days Critical Path: A-C-E-F

A C B D,E F LF
5 9 10 12 16 (days)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 372
 Duration (days)

Days
Pre.
ID

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

A - 5
B A 3
C A 4
D B 2
E C 3
F D,E 4

A C B D,E F LF
5 9 10 12 16 (days)

Planned Duration = 16 days Critical Path: A-C-E-F

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 373
 Monthly Production Schedule (Line of Balance)

LF (days)
Units #

LF (days)
Target Performance A B C D E F
at Day #13 17 7 9 3 3 -
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 374
Number of Crews for Each Activity:
A B C D E F
Crew-days / Unit 5 3 4 2 3 4
Order Production Quantity 10 10 10 10 10 10
Total Crew-days 50 30 40 20 30 40
Latest Start Day
Latest Finish Day
Total Duration (days)
Number of Crews/day

Order Processing Cost:

A B C D E F
Crew-day / Unit 5 3 4 2 3 4
Total Crew-day 50 30 40 20 30 40
Processing Cost
$ / Crew-day
$
Total Processing Cost

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 375
 Operation Planning (Routine Works)
Example:
For a production system, the activity
information per unit product is as follows:
Activity Duration
Predecessors
ID (Days / Crew)
Brainstorming A - 1
B A 1
C A 2
D B 1
E C 2
Focus Group F D,E 1
Constraints:
• Order Production Quantity = 10 units
• Order Working Days = 10 days
• Processing Cost Rate = $1000 / Crew-day

Based on this information; discuss the following:

1) Network for Unit Product 2) Schedule for Unit Product
3) Order Schedule 4) Target Performance at Day #8
5) Number of Crews for Each Activity 5) Order Processing Cost
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 376
Network per unit product: ES d EF
Activity ID
LS TF LF
1 1
B D
1 1
A F
2 2
C E

Planned Duration = 6 days Critical Path: A-C-E-F

Latest Finish:
A C B D,E F
LF
1 3 4 5 6
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 377
 Duration (days)

Days
Pre.
ID

1 2 3 4 5 6

A - 1
B A 1
C A 2
D B 1
E C 2
F D,E 1

Latest Finish:
A C B D,E F
LF
1 3 4 5 6
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 378
 Assignments

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 379
Report #1: Current Situation Analysis & KPIs
Company: Field:
Department Main Objectives; for example KPIs
•
Financial •
•
•
Marketing •
•
•
Operations •
•
•
Materials •
•
You can’t improve what you don’t measure
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 380
Assignment #1- Current Situation Analysis:
The following information for a steel company in Egypt (2019):
1) Cost Information:
• Annual Material Cost = 500,000,000 LE/year
• Annual Labor Cost = 100,000,000 LE/year
• Annual Machine Cost = 200,000,000 LE/year
• Technical Overhead = 150,000,000 LE/year
• Office Overhead = 50,000,000 LE/year
2) Sales & Market Information:
• Market Plan = 120,000 ton/year
• Annual Sales Quantity = 100,000 ton/year
• Net Sales Revenue = 1,100,000,000 LE/year
• Customer Claims = 10,000 ton/year
• Inventory Shortage (Products) = 5,000 ton/year
• Annual Sales of the Market = 700,000 ton/year

3) Operation Information:
• Annual Standard Capacity = 200,000 ton / year
• Production Plan = 125,000 ton / year
• Annual Production Quantity = 120,000 ton / year
• Annual Defect Quantity = 10,000 ton / year
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 381
4) Inventory Information:
Types of Inventory Open End
Material Inventory Value ; LE 50,000,000 40,000,000
WIP Inventory Value ; LE 60,000,000 50,000,000
Product Inventory Value ; LE 80,000,000 70,000,000
5) Targets & Benchmarking:
Industry Bench
Dep KPIs Unit
Average Marking
Profit % 15% 25%
Financial
Value Added Factor 2.3 2.6
Market Share % 20% 25%
Marketing Sales Efficiency % 80% 90%
Customer Claims % 8% 5%
Capacity Utilization % 70% 80%
Operations Production Efficiency % 85% 90%
Defect Rate (Rejected) % 6% 4%
Inventory Turnover turns/year 5 7
Materials
Inventory Availability % 97% 99%
Based on this information, discuss the current situation analysis.
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 382
 1) KPIs Formulas

Dep KPIs Unit Formula

Profit % (Unit Price – Unit Cost) / Unit Cost

Financial
Value Added Factor Unit Price / Unit Material Cost
Market Share % Annual Sales / Total Market Sales
Marketing Sales Efficiency % Annual Sales / Market Plan
Customer Claims % Customer Claim / Annual Sales
Capacity Utilization % Net Production / Std Capacity
Operations Production Efficiency % Net Production / Planned Production
Defect Rate % Defect Quantity / Total Production
Inventory Turnover turns/year Cost of Sales / Avg. Inv. Value
Materials
Inventory Availability % Sales QTY / (Sales QTY + Shortage)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 383
 2) Current Situation Analysis - Table

Industry Bench Evaluation

Dep KPIs Unit Current
Average Marking (+) / (-)

Profit % 15% 25%

Financial
Value Added Factor 2.3 2.6

Market Share % 20% 25%

Marketing Sales Efficiency % 80% 90%

Customer Claims % 8% 5%

Capacity Utilization % 70% 80%

Operations Production Efficiency % 85% 90%

Defect Rate % 6% 4%

Inventory Turnover turns/year 5 7

Materials
Inventory Availability % 97% 99%

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 384
 3) Current Situation Analysis – Graph (Star Diagram)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 385
 4) Objectives and recommendation for the next year
Dep Objectives for the next year Recommendations
Improve Profit from x to y 1) Reducing fixed cost
2)
Financial
Improve Value Added from x to y 3)
4)
Increase Market Share from x to y
1) Enhancing customer service
Increase Sales Efficiency from x to y 2)
Marketing
3)
Reduce Customer Claims from x to y 4)

Improve Capacity Utilization from x to y

1) Analyzing the product defects
2)
Operations Improve Production Efficiency from x to y
3)
Reduce Defect Rate from x to y 4)

Increase Inventory Turnover from x to y 1) Improving Material Plans

2)
Materials
Increase Inventory Availability from x to y 3)
4)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 386
 1) KPIs Formulas

Dep KPIs Unit Formula

Profit % (Unit Price – Unit Cost) / Unit Cost

Financial
Value Added Factor Unit Price / Unit Material Cost
Market Share % Annual Sales / Total Market Sales
Marketing Sales Efficiency % Annual Sales / Market Plan
Customer Claims % Customer Claim / Annual Sales
Capacity Utilization % Net Production / Std Capacity
Operations Production Efficiency % Net Production / Planned Production
Defect Rate % Defect Quantity / Total Production
Inventory Turnover turns/year Cost of Sales / Avg. Inv. Value
Materials
Inventory Availability % Sales QTY / (Sales QTY + Shortage)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 387
 2) Current Situation Analysis - Table

Current Industry Bench Evaluation

Dep KPIs Unit
2019 Average Marking (+) / (-)

Profit % 21% 15% 25% Positive

Financial
Value Added Factor 2.4 2.3 2.6 Positive

Market Share % 14.29% 20% 25% Negative

Marketing Sales Efficiency % 83% 80% 90% Positive

Customer Claims % 10% 8% 5% Negative

Capacity Utilization % 55% 70% 80% Negative

Operations Production Efficiency % 88% 85% 90% Positive

Defect Rate % 8% 6% 4% Negative

Inventory Turnover turns/year 5.2 5 7 Positive

Materials
Inventory Availability % 95% 97% 99% Negative

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 388
 3) Current Situation Analysis – Graph (Star Diagram)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 389
 4) Objectives and recommendation for the next year
Dep Objectives for the next year Recommendations
Improve Profit from 21% to 25% 1) Reducing fixed cost
Financial

Improve Value Added from 2.4 to 2.6 2) Reducing overhead cost

3) Reducing production cost
4) Improving financial position
Increase Market Share from 14.29% to 25% 1) Enhancing customer service
Marketing

2) Creating competitive advantage

Increase Sales Efficiency from 83% to 90%
3) Creating new markets
Reduce Customer Claims from 10% to 5% 4) Developing the motivation
program
Improve Capacity Utilization from 55% to 80%
Operations

1) Analyzing the product defects

Improve Production Efficiency from 88% to 90% 2) Improving working conditions
3) Enhancing MRP system
Improve Defect Rate from 8% to 4% 4) Updating maintenance programs

Increase Inventory Turnover from 5.2 to 7 turns 1) Improving Material Plans

Materials

2) Improving Inventory Control

Increase Inventory Availability from 95% to 99% 3) Improving Order Management
4) Improving Operation plans

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 390
Cost Breakdown Structure
Unit Price
• Unit Level 11,000 LE/ton

Unit Cost Unit Profit

9,091 (100%) Base 1,909 (21%)

Direct Cost Overhead

Technical
7,273 (80%) 1,818 (20%)

Materials Labour Machine Technical Office

Cost Cost Cost Overhead Overhead
4,545 (50 %) 909 (9 %) 1,818 (19.2%) 1,364 (15%) 455 (5%)

Critical Factory Cost

Resources 8,636 (95%)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 391
Cost KPIs Analysis:
From cost breakdown structure
Main Indicators:
- Profit = 21 % from cost

- Value Added Factor = Price / Mat. Cost = 11,000/4,545 = 2.4

(1 Material : 2.4 Price)  Material Productivity

- Margin Factor = Price / Direct Cost =11,000/7,273= 1.5

(1 Direct : 1.5 Price)  Direct Resource Productivity

- Markup Factor = Price / Factory Cost= 11,000/ 8,636=1.27

(Office Overhead + Profit) = 27% Factory Cost

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 392
Assignment #2- Current Situation Analysis:
A small shirt manufacturing company has the following information:

Department Information Type

Financial 1) Cost Information
Marketing 2) Sales Information
Operations 3) Production Information
Materials 4) Materials & Inventory Information
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 393
Assignment #2- Current Situation Analysis:
A small shirt manufacturing company has the following information; (2019):
1) Cost Information:
• Annual Material Cost = 500,000,000 LE/year
• Annual Labor Cost = 100,000,000 LE/year
• Annual Machine Cost = 200,000,000 LE/year
• Technical Overhead = 150,000,000 LE/year
• Office Overhead = 50,000,000 LE/year
2) Sales & Market Information:
• Market Plan = 120,000 ton/year
• Annual Sales Quantity = 100,000 ton/year
• Net Sales Revenue = 1,100,000,000 LE/year
• Customer Claims = 10,000 ton/year
• Inventory Shortage (Products) = 5,000 ton/year
• Annual Sales of the Market = 700,000 ton/year

3) Operation Information:
• Annual Standard Capacity = 200,000 ton / year
• Production Plan = 125,000 ton / year
• Annual Production Quantity = 120,000 ton / year
• Annual Defect Quantity = 10,000 ton / year
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 394
4) Inventory Information:
Types of Inventory Open End
Material Inventory Value ; LE 50,000,000 40,000,000
WIP Inventory Value ; LE 60,000,000 50,000,000
Product Inventory Value ; LE 80,000,000 70,000,000
5) Targets & Benchmarking:
Industry Bench
Dep KPIs Unit
Average Marking
Profit % 15% 25%
Financial
Value Added Factor 2.3 2.6
Market Share % 20% 25%
Marketing Sales Efficiency % 80% 90%
Customer Claims % 8% 5%
Capacity Utilization % 70% 80%
Operations Production Efficiency % 85% 90%
Defect Rate (Rejected) % 6% 4%
Inventory Turnover turns/year 5 7
Materials
Inventory Availability % 97% 99%
Based on this information, discuss the current situation analysis.
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 395
 Assignment #3- Product Cost Analysis & Current Situation Analysis
A small shirt manufacturing company has the following information:
1) Sales Information:
Quarter Q1 Q2 Q3 Q4
Market plan quantity; units 5,000 5,250 5,500 5,750
Actual sales quantity; units 4,500 5,000 5,300 5,500
Average market unit price; LE/unit 120 125 130 135
Customer claims quantity; units 100 120 130 150
2) Production Information:
Quarter Q1 Q2 Q3 Q4
Standard production quantity; units 8,000 8,000 8,000 8,000
Planned production quantity; units 6,000 6,000 6,000 6,000
Actual production quantity; units 5,060 5,260 5,600 5,800
Defect quantity; units 60 70 80 100
Sewing machine operator 0.5 hour/shirt 50 LE/hour
Buttoning and finishing work 0.2 hour/shirt 15 LE/hour
Standard production time One shift 8 hours/day & 280 days/year
Standard worker time 2000 hours/year
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 396
3) Materials & Inventory Information:
Cost of fabric; LE/kg 80 Required material; kg/shirt 0.5
Opening inventory; kg 2,100 Ending inventory; kg 2,500

4) Factory Overhead Cost Information:

Quarter Q1 Q2 Q3 Q4
Variable overhead cost; LE/unit 8 10 12 14
Fixed overhead cost; LE/quarter:
• Administrative salary 35,000 35,000 35,000 35,000
• Depreciation 15,000 15,000 15,000 15,000
• Rent & others 28,000 28,000 28,000 28,000

Based on this information, discuss the following:

1) Financial & product cost analysis (cost breakdown structure, cost
indicators, break even analysis, … etc.)
2) Production resource analysis (utilization, efficiency, productivity, … etc.)
3) Sales & marketing analysis (sales efficiency, customer satisfaction, … etc.)
4) Material & inventory analysis (turnover, efficiency, productivity, … etc.)
5) Objectives and recommendation for the next year
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 397
 1) Product Cost Analysis
1) Cost Breakdown Structure: Net Production
= --- units/quarter
Unit Level – Q & Annual Unit Price

Unit Cost Base Unit Profit

Direct Cost Factory Overhead

Materials Cost Labour Cost Variable Overhead Fixed Overhead

2) Cost Indicators: 3) Breakeven Analysis:

Profit ratio % Breakeven Quantity
Value added factor Breakeven %
Margin factor Margin of Safety %
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 398
 2) Production Resource Analysis
Quality Ratio % Material Productivity kg/shirt

Capacity Utilization % Labor Productivity hour/shirt

Production Efficiency % …
… …

3) Sales & marketing analysis

Sales efficiency % Customer claims %
Sales revenue; LE …
…. …
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 399
 4) Material & Inventory Analysis
Inventory Turnover Material Utilization %
Inventory Weeks of Supply Inventory Availability %
…. …
5) Objectives and recommendation for the next year
Dep Objectives for the next year Recommendations

Financial

Marketing

Operations

Materials

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 400
Product Cost Analysis:
Quarter Q1 Q2 Q3 Q4
1 Direct material cost per shirt 40.5 40.5 40.6 40.7
2 Direct labor cost per shirt 32.9 32.9 33 33.1
3 Direct cost per shirt = 1+2 73.4 73.4 73.6 73.8
4 Variable overhead per shirt 8.1 10.1 12.2 14.2
5 Fixed overhead per shirt 15.6 15 14.1 13.7
6 Factory overhead per shirt = 4+5 23.7 25.2 26.3 27.9
7 Product cost per shirt = 3 + 6 97.1 98.6 99.9 101.7
8 Average market unit price; LE/unit 120 125 130 135
9 Profit per shirt = 8-7 22.9 26.4 30.1 33.3
10 Profit ratio % = 9/7 23.6% 26.8% 30.1% 32.7%
11 Value added factor = 8/1 2.96 3.09 3.20 3.32
12 Margin factor = 8/3 1.63 1.70 1.77 1.83

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 401
Direct Material Cost Analysis:
Quarter Q1 Q2 Q3 Q4

1 Actual production quantity; units 5,060 5,260 5,600 5,800

2 Required fabric; kg/shirt 0.5 0.5 0.5 0.5

3 Direct material quantity; kg =1*2 2,530 2,630 2,800 2,900

4 Cost of fabric; ($/kg) 80 80 80 80

5 Total direct material cost; (LE) =3*4 202,400 210,400 224,000 232,000

6 Defect quantity; units 60 70 80 100

7 Net production quantity; units = 1-6 5,000 5,190 5,520 5,700

8 Direct material cost per shirt = 5/7 40.5 40.5 40.6 40.7
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 402
Direct Labor Cost Analysis:
Quarter Q1 Q2 Q3 Q4
1 Actual production quantity; units 5,060 5,260 5,600 5,800
2 Machine operator time; hour/unit 0.5 0.5 0.5 0.5
3 Total machine operator time; hour =1*2 2,530 2,630 2,800 2,900

4 Machine operator cost; LE/unit 50 50 50 50

5 Total machine operator cost; LE = 3*4 126,500 131,500 140,000 145,000

6 Buttoning and finishing time; hour/unit 0.2 0.2 0.2 0.2

7 Total buttoning and finishing time; 2,530 2,630 2,800 2,900
hour =1*2
8 Buttoning and finishing cost; LE/unit 15 15 15 15
9 Total buttoning and finishing cost; LE = 37,950 39,450 42,000 43,500
7*8
10 Total direct labor cost; LE = 5+9 164,450 170,950 182,000 188,500

11 Net production quantity; units 5,000 5,190 5,520 5,700

12 Direct labor cost per shirt = 10/11 32.9 32.9 33.0 33.1

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 403
Factory overhead cost:
Quarter Q1 Q2 Q3 Q4
1 Variable overhead cost; LE/unit 8 10 12 14
2 Actual production quantity; units 5,060 5,260 5,600 5,800
3 Total variable overhead cost =1*2 40,480 52,600 67,200 81,200

4 Fixed overhead cost; LE/quarter

5 - Administrative salary 35,000 35,000 35,000 35,000
6 - Depreciation 15,000 15,000 15,000 15,000
7 - Rent 28,000 28,000 28,000 28,000
8 Total fixed cost; LE =5+6+7 78,000 78,000 78,000 78,000

9 Total factory overhead cost =3+8 118,480 130,600 145,200 159,200

10 Net production quantity; units 5,000 5,190 5,520 5,700

11 Factory overhead per shirt =9/10 23.7 25.2 26.3 27.9

12 Variable overhead per shirt =3/10 8.1 10.1 12.2 14.2

13 Fixed overhead per shirt = 8/10 15.6 15.0 14.1 13.7

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 404
Product Cost Analysis:
Quarter Q1 Q2 Q3 Q4
1 Direct material cost per shirt 40.5 40.5 40.6 40.7
2 Direct labor cost per shirt 32.9 32.9 33 33.1
3 Direct cost per shirt = 1+2 73.4 73.4 73.6 73.8
4 Variable overhead per shirt 8.1 10.1 12.2 14.2
5 Fixed overhead per shirt 15.6 15 14.1 13.7
6 Factory overhead per shirt = 4+5 23.7 25.2 26.3 27.9
7 Product cost per shirt = 3 + 6 97.1 98.6 99.9 101.7
8 Average market unit price; LE/unit 120 125 130 135
9 Profit per shirt = 8-7 22.9 26.4 30.1 33.3
10 Profit ratio % = 9/7 23.6% 26.8% 30.1% 32.7%
11 Value added factor = 8/1 2.96 3.09 3.20 3.32
12 Margin factor = 8/3 1.63 1.70 1.77 1.83

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 405
Cost Breakdown Structure Net Production
= 5,000 units/quarter

Unit Level – Q1 Unit Price

120 LE/unit

Unit Cost Unit Profit

97.1 (100%) Base 22.9 (23.6 %)

Direct Cost Factory Overhead

73.4 (75.6%) 23.7 (24.4%)

Materials Labour Variable Fixed

Cost Cost Overhead Overhead
40.5 (41.7 %) 32.9 (33.9%) 8.1 (8.3 %) 15.6 (16.1%)

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 406
Breakeven Analysis:
# Quarter Q1 Q2 Q3 Q4

1 Average market unit price; LE/unit 120 125 130 135

2 Direct cost per shirt 73.4 73.4 73.6 73.8
3 Variable overhead per shirt 8.1 10.1 12.2 14.2

4 Variable cost per unit= 2+3 81.5 83.5 85.8 88.0

5 Total fixed cost; LE 78,000 78,000 78,000 78,000

6 BEQ = 5 / (1-4) 2026 1880 1765 1660

7 Net production quantity; units 5,000 5,190 5,520 5,700

8 Breakeven % = 6/7 40.5% 36.2% 32.0% 29.1%

9 Margin of safety % = (100) – 9 59.5% 63.8% 68.0% 70.9%

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 407
2) Production Resource Analysis:
# Quarter Q1 Q2 Q3 Q4
1 Standard production quantity; units 8,000 8,000 8,000 8,000
2 Planned production quantity; units 6,000 6,000 6,000 6,000
3 Actual production quantity; units 5,060 5,260 5,600 5,800
4 Defect quantity; units 60 70 80 100
5 Net production quantity; units = 3-4 5,000 5,190 5,520 5,700
6 Quality Ratio % = 5/3 98.8% 98.7% 98.6% 98.3%
7 Capacity Utilization % = 5/1 62.5% 64.9% 69.0% 71.3%
8 Production Efficiency % = 5/2 83.3% 86.5% 92.0% 95.0%
9 Direct material quantity; (units) 2,530 2,630 2,800 2,900

10 Material Productivity; kg/shirt= 9/5 0.506 0.507 0.507 0.509

11 Total machine operator time; hour 2,530 2,630 2,800 2,900

12 Total buttoning and finishing time; hour 2,530 2,630 2,800 2,900

13 Total Labor Time; hours = 11+12 5,060 5,260 5,600 5,800

14 Labor Productivity; hour/shirt= 13/5 1.012 1.013 1.014 1.018

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 408
3) Sales & marketing analysis :

# Quarter Q1 Q2 Q3 Q4

1 Market plan quantity; units 5,000 5,250 5,500 5,750

2 Actual sales quantity; units 4,500 5,000 5,300 5,500

3 Sales efficiency % = 2/1 90.0% 95.2% 96.4% 95.7%

4 Customer claims quantity; units 100 120 130 150

5 Customer claims % = 4/3 2.2% 2.4% 2.5% 2.7%

6 Average market unit price; LE/unit 120 125 130 135

7 Sales revenue; LE = 2*6 540,000 625,000 689,000 742,500

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 409
4) Material & inventory analysis:
# Quarter Q1 Q2 Q3 Q4 Year
1 Opening inventory; kg 2,100 2,100
2 Ending inventory; kg 2,500 2,500
3 Average Inventory = (1+2)/2 2,300
4 Cost of fabric; LE/kg 210 210
5 Average Inventory Value=3*4 483,000
6 Actual sales quantity; units 4,500 5,000 5,300 5,500

7 Product cost per shirt 97.1 98.6 99.9 101.7

8 Cost of Sales; LE = 6*7 436,950 493,000 529,470 559,350 2,018,770

9 Inventory Turnover = 8/5 4.2
10 Inventory Weeks of Supply= 52/9 12.4
11 Direct material quantity; kg 2,530 2,630 2,800 2,900 10,860
12 Total material quantity; kg = 11+2 13,360
13 Material Utilization % = 11/12 81.3%

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 5) Objectives and recommendation for the next year
Dep Objectives for the next year Recommendations
Materials Operations Marketing Financial

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Assignment #4: Market Forecasting
A small shirt manufacturing company
has the following information:
Market Sales Market Number of Customer
Quarter / Price Share Customers Claims
Year Quantity
(LE/unit) (units) % )‫(محل بيع‬ %
1 Q1-19 88 3,400 4.5% 20 1.5%
2 Q2-19 95 3,600 5.2% 22 1.7%
3 Q3-19 102 3,800 6.1% 25 1.9%
4 Q4-19 110 4,100 6.7% 28 2.0%
5 Q1-20 120 4,500 7.3% 32 2.2%
6 Q2-20 125 5,000 8.4% 35 2.4%
7 Q3-20 130 5,300 8.8% 40 2.5%
8 Q4-20 135 5,500 9.2% 48 2.7%

Based on this information, discuss the market forecasting

parameters for the next year 2021
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 412
 Comments:

The data is
Excellent fit
because R2 > 0.9

Market forecasting parameters for the next year 2021:

x y1 y2 Y3 y4 y5
Market Price Sales Quantity Market Number of Customers
# Q-Year (LE/unit) (units) Share % Customers Claims%
9 Q1-2021 144.4 5,857 10.2 48 2.9
10 Q2-2021 151.3 6,181 10.8 52 3.0
11 Q3-2021 158.2 6,505 11.5 56 3.2
12 Q4=2021 165.2 6,829 12.2 60 3.4
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 413
Assignment #5: MRP:
A company produces a shirt (A).
Each A consists of 0.5 kg of fabric (B).
 Annual Master Production Schedule (MPS) for A:
Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements 0 3,000 0 3,500 0 4,000 0 4,500 0 5,000 0 5,500
 Inventory Status Records:
Inventory Lead Time Lot Size Safety Open Unit Cost
Item Type ID
on Hand (month) (units) Stock Orders (LE/unit)
Shirt A 1,500 1 1,000 250 1000, m1 100
Fabric B 2,500 1 1,000 1,000 1000, m1 90

Based on this information, discuss the following:

Material a) Calculate direct material cost for each product.
Planning
b) Construct MRP tables (A & B)
c) Inventory turnover & inventory weeks of supply

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Direct material cost for each product: A = 0.5 B = 0.5 * 90 = 45 LE/unit
Inventory Lead Time Lot Size Safety Open Unit Cost
Item Type ID on Hand (month) (units) Stock Orders (LE/unit)
Products A 1,500 1 1,000 250 1000, m1 100
Materials B 2,500 1 1,000 1,000 1000, m1 90
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements 0 3000 0 3500 0 4000 0 4500 0 5000 0 5500
Schedule Receipts 1000
A Stock on Hand 1500
Net Requirements
Planned Order Receipts
Planned Order Release
Gross Requirements
Schedule Receipts 1000
Stock on Hand 2500
B
Net Requirements
Item IDOrder
Planned Average
ReceiptsUnit Cost Total Value Annual Sales Quantity =
Fabric B Annual Cost of Sales =
Planned
Shirt A Order Release Inventory Turnover =
Average Inventory Value Inventory Weeks of Supply =
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 415
Direct material cost for each product: A = 0.5 B = 0.5 * 90 = 45 LE/unit
Inventory Lead Time Lot Size Safety Open Unit Cost
Item Type ID on Hand (month) (units) Stock Orders (LE/unit)
Products A 1,500 1 1,000 250 1000, m1 100
Materials B 2,500 1 1,000 1,000 1000, m1 90
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements 0 3000 0 3500 0 4000 0 4500 0 5000 0 5500
Schedule Receipts 1000
A Stock on Hand 1500 2500 500 500 1000 1000 1000 1000 500 500 500 500 1000
Net Requirements 0 750 0 3250 0 3250 0 3750 0 4750 0 5250
Planned Order Receipts 0 1000 0 4000 0 4000 0 4000 0 5000 0 6000
Planned Order Release 1000 0 4000 0 4000 0 4000 0 5000 0 6000 0
Gross Requirements 500 0 2000 0 2000 0 2000 0 2500 0 3000 0
Schedule Receipts 1000
Stock on Hand 2500 3000 3000 1000 1000 1000 1000 1000 1000 1500 1500 1500 1500
B
Net Requirements 0 0 0 02000 0 2000 0 2500 0 2500 0
Item IDOrder
Planned Average
Receipts Unit Cost
0 Annual
0Total 0Value0 2000 0 Sales
2000Quantity
0 3000 = 25,500
0 units
3000 0
Fabric B 1,577 90 141,930 Annual Cost of Sales = 2,550,000 LE
Planned
Shirt A Order923
Release 100 0 0 92,300
0 2000 Inventory
0 2000 Turnover
0 3000= 10.90 turns/year
3000 0 0
Average Inventory Value 234,230 Inventory Weeks of Supply = 4.8

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 416
Assignment #6 – Inventory Control
• Material Type: Fabric
• Unit Material Cost = 90 LE/kg
• Average Order Cost = 200 LE/ order
• Average Carrying Cost per Unit = 10 LE/year
• Open Inventory = 3,500 kg
• Supplier Lot Size = 1000 kg
• Service Level = 95%
Inventory History 2019
Month Demand (units) Delivery Lead time (Days)
Jan 900 1 38
Feb 1,000 2 37
Mar 800 3 38
Apr 1,100
4 40
5 33
May 900
6 28
June 1,200
7 37
July 900 8 36
Aug 1,100 9 36
Sept 1,100 10 27
Oct 1,000
SCM
Nov 800 Management Best Practice - Dr. Attia Gomaa - 2022
Supply Chain 417
 Assignment #7
A company produces two products A and B that are made from two components
C and D. Each A consists of 5 C’s and 4 D’s. Each B consists of 3 C’s and 2 D’s.
 Market Information:
Unit Price Annual Sales of the Market
Item Type ID
(LE/unit) (Units/year)
A 2500 9,000
Products
B 1600 15,000
 Annual Master Production Schedule (MPS):
Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 300 0 400 0 300 0 400 0 0
Gross Requirements for B 0 0 500 0 400 0 500 0 400 0 500 0

 Inventory Status Records:

Stock on Lead Time Lot Size Safety Open Unit Cost
Item Type ID
Hand (month) (units) Stock Orders (LE/unit)
A 1000 1 1000 300 0 2000
Products
B 1500 1 500 200 0 1200
C 2000 2 2000 500 1000, m2 200
Materials
D 1000 2 LFL 400 1000, m3 100
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 418
 Based on this information, discuss the following:
a) Calculate direct material cost for each product.
b) Construct MRP tables (Assembly & material plans)
c) Inventory turnover & inventory weeks of supply
d) Profit and value-added ratios
e) Market share ratio
f) Objectives and Recommendations for the next period

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 419
 Annual Master Production Schedule (MPS):
Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 300 0 400 0 300 0 400 0 0
Gross Requirements for B 0 0 500 0 400 0 500 0 400 0 500 0

Bill of Quantity (BOQ): A B

C,5 D,4 C,3 D,2

 Annual Quantity:
A = 1,800 B = 2,300 C = 5 A + 3 B = 5*1,800 + 3*2,300 = 15,900
D = 4 A + 2 B = 4*1,800 + 2*2,300 = 11,800

 Direct Material Cost for each product:

Direct Material Cost to produce 1,800 A = 1,800 (5 C + 4 D)

= 9,000 C + 7,200 D = 9,000 *200 + 7,200 * 100 = 2,520,000 LE
Unit Material Cost = 1,400 LE/unit A

Direct Material Cost to produce 2,300 B = 2,300 (3 C + 2 D)

= 6,900 C + 4,600 D = 6,900 *200 + 4,600 * 100 = 1,840,000 LE
Unit Material Cost = 800 LE/unit A
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 420
MRP Tables:
Item : A On Hand 1000 Safety Stock 300 Lead Time 1 Lot Size 1000 S. Rec. (0)
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross Req. for A 0 400 0 300 0 400 0 300 0 400 0 0
Schedule Receipts
Stock On Hand 1000 1000 600 600 300 300 900 900 600 600 1200 1200 1200
Net Requirements 400 100
P. Order Receipt 1000 1000
P. Order Release 1000 1000
Average inventory quantity for item A = 800 units (Average)
Average inventory cost for item A = Quantity * Unit Cost = 1,600,000 LE
Item : B On Hand 1500 Safety Stock 200 Lead Time 1 Lot Size 500 S. Rec. (0)
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross Req. for B 0 0 500 0 400 0 500 0 400 0 500 0
Schedule Receipts
Stock On Hand 1500 1500 1500 1000 1000 600 600 600 600 200 200 200 200
Net Requirements 100 700
P. Order Receipt 500 500
P. Order Release 500 500
Average inventory quantity for item B = 746 units (Average)
Average inventory cost for item B = Quantity * Unit Cost = 895,200 LE
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 421
MRP Tables:

Item : C On Hand 2000 Safety Stock 500 Lead Time 2 Lot Size 2000 S. Rec. (1000,m2)
Period (month) Open 1 2 3 4 5 6 7 8 9 10 11 12
A B A B
1000 500 1000 500
*5 *3 *5 *3
= = = =
Gross Req. for A 5000 1500 5000 1500
Schedule Receipts 1000
Stock On Hand 2000 2000 3000 3000 3000 2000 500 500 500 1500 2000 2000 2000
Net Requirements 2500 5000 500
P. Order Receipt 4000 6000 2000
P. Order Release 4000 6000 2000

Average inventory quantity for item C = 1846 units (Average)

Average inventory cost for item C = Quantity * Unit Cost = 369,200 LE

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 422
MRP Tables:

Item : D On Hand 1000 Safety Stock 400 Lead Time 2 Lot Size LFL S. Rec. (1000,m3)
Period (month) Open 1 2 3 4 5 6 7 8 9 10 11 12
A B A B
1000 500 1000 500
*4 *2 *4 *2
= = = =
Gross Req. for A 4000 1000 4000 1000
Schedule Receipts 1000
Stock On Hand 1000 1000 1000 2000 2000 400 400 400 400 400 400 400 400
Net Requirements 2400 1000 4000 1000
P. Order Receipt 2400 1000 4000 1000
P. Order Release 2400 1000 4000 1000

Average inventory quantity for item C = 785 units (Average)

Average inventory cost for item C = Quantity * Unit Cost = 78,500 LE

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 423
 Inventory Policy (Planned Order Release)
(When to order? & How much to order?)
Period (month)
Item
1 2 3 4 5 6 7 8 9 10 11 12
A 1000 1000
B 500 500
C 4000 6000 2000
D 2400 1000 4000 1000

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 424
Average Inventory Value:
Item Item Average Unit Cost Total Value
Item Name
Type ID Level (unit) (LE/unit) (LE)
Raw C C 1846 200 369,200
Materials D D 785 100 78,500
Work In
Process

Final A A 800 2000 1,600,000

Products B B 746 1200 895,200
Average Inventory Value 2,942,900

Inventory Turnover = Annual Cost of Sales / Average Inventory Value

Annual Cost of Sales = (1800 * 2000 + 2300 * 1200) = 6,360,000 LE

Inventory Turnover = 6,360,000 / 2,942,900 = 2.16 turns / year

Inventory Weeks of supply = 52 weeks / 2.16 turns = 24 weeks/turn

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 425
Profit and value-added ratios:
Unit Price; Unit Cost Material Cost
Item Type ID
LE/unit LE/unit LE/unit
A 2500 2000 1400
Products
B 1600 1200 602

Product (A):
• Profit Ratio = (2500-2000)/2000 = 25%
• Value-added Factor = (2500/1400) = 1.9
(1 Material : 1.9 Price)  Material Productivity
Product (B):
• Profit Ratio = (1600-1200)/1200 = 33.3%
• Value-added Factor = (1600/602) = 2.66
(1 Material : 2.66 Price)  Material Productivity
Market share:
Item Type ID Annual Sales Sales of the Market Market Share
A 1,800 9,000 20%
Products
B 1600 15,000 15.3%
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 426
Objectives and Recommendations for the Next Period:

Dep Objectives Recommendations

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 427
 Assignment #8: Supplier evaluation & selection

Discuss by example the policy of supplier

evaluation and selection in your company

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 428
Assignment #9: Competitive Analysis

For example

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 429
Assignment #9: Competitive Analysis

Discuss by example the competitive analysis for your company

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 430
Supply Chain Management (SCM)

Test Exam #1

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Question #1: Business KPIs & Current Situation Analysis:
The following information for a car assembly plant in Egypt (2016):
Sales & Market Information:
• Annual Sales Quantity = 10,000 Units/year
• Net Sales Revenue = 1,100,000,000 LE/year
• Annual Sales of the Market = 70,000 units/year

Operation Information:
• Annual Standard Capacity = 20,000 units / year
• Annual Production Capacity = 11,000 units / year
• Annual Production Cost = 1,100,000,000 LE/year
Inventory Information:
Types of Inventory Open End
Material Inventory Value ; LE 45,000,000 40,000,000
WIP Inventory Value ; LE 60,000,000 50,000,000
Product Inventory Value ; LE 85,000,000 75,000,000
Based on this information, discuss the following:
1) Profit Analysis (Industry Average 15% from cost)
2) Inventory Turnover Analysis (Industry Average 6 turns/year)
3) Capacity Utilization Analysis (Industry Average 70%)
4) Market Share Analysis (Industry Average 20%)
5) Objectives and Recommendations for the next period

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 432
Department KPIs Unit Current Average Target Evaluation
Financial Profit % 10 15 15 Negative
Marketing Market Share % 14 20 20 Negative
Operations Capacity Utilization % 55 70 70 Negative
Materials Inventory Turnover turns/year 5.6 6 6 Negative

Department Target Objective Improvement Recommendations

1) Reducing fixed cost
Improve profit ratio from 10% to15%
2) Reducing overhead cost
Financial
Reduce Average unit cost from 100,000 to 3) Reducing production cost
95,652 LE/unit 4) Improving financial position
Improve Market Share from 14% to 20%
1) Enhancing customer service
Marketing Improve Annual Sales Quantity from 10,000
2) Creating competitive advantage
to 14,000 unit/year
Improve Capacity Utilization from 55% to
70% 1) Analyzing the product defects
Operation
Improve Annual Production Quantity from 2) Improving working conditions
11,000 to 14,000 unit/year
Improve Inventory Turnover from 5.6 to 6
turns/year 1) Improving Material Plans
Materials
Reduce Average Inventory Value from 2) Improving Inventory Control
177,500,000 to 166,666,667 LE/year

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 433
Question #2: Business KPIs & Current Situation Analysis:
The following information for a car assembly plant in Egypt (2020):
Sales & Market Information:
• Annual Sales Quantity = 12,000 Units/year
• Net Sales Revenue = 1,500,000,000 LE/year
• Annual Sales of the Market = 70,000 units/year

Operation Information:
• Annual Standard Capacity = 20,000 units / year
• Annual Production Capacity = 13,000 units / year
• Annual Production Cost = 1,200,000,000 LE/year
Inventory Information:
Types of Inventory Open End
Material Inventory Value ; LE 40,000,000 30,000,000
WIP Inventory Value ; LE 50,000,000 40,000,000
Product Inventory Value ; LE 60,000,000 50,000,000
Based on this information, discuss the following:
1) Profit Analysis (Industry Average 15% from cost)
2) Inventory Turnover Analysis (Industry Average 6 turns/year)
3) Capacity Utilization Analysis (Industry Average 70%)
4) Market Share Analysis (Industry Average 20%)
5) Objectives and Recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 434
Question #3: Product Cost Analysis:
The cost classification matrix for a project (First year 2018)
is as follows:
Product: LCD TV Unit Price = 320 $/unit
Planned Capacity = 110,000 units/year
$1,000,000 Cost Classification Matrix
Cost Elements Fixed Cost Variable Cost
Raw Materials 11
Direct Costs Technical labors 2 3
Productive Equipment 6 4
Technical Overhead 1 1
Overheads
Office Overhead 1 -
Based on this information, discuss the following:
a) Cost breakdown structure
b) Cost Indicators (Profit, Value Added, Margin, Markup)
c) Break even ratio & Margin of safety
d) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 435
Cost Breakdown Structure Planned Capacity
= 110,000
Unit Price units/year
Unit Level 320 $/unit

Unit Cost Unit Profit

263.6 (100%) Base 56.4 (21.4 %)

Direct Cost Overhead

Technical
236.4 (89.7%) Factory Cost 27.3 (10.3%)
254.4 (96.6%)

Materials Machine Labour Technical Office

Cost Cost Cost Overhead Overhead
100 (37.9 %) 90.9 (34.5%) 45.5 (17.2 %) 18.2 (- %) 9.1 (-%)

Price Policy:
Critical 1) Target Price = 320 $/unit
Resources 2) Breakeven Price = 263.6
SCM 3) Gomaa
Supply Chain Management Best Practice - Dr. Attia Worst- Price
2022 = 254.4
436
Cost Indicators:
Profit Value added Margin Markup
% Factor Factor Factor
21.4% 3.2 1.35 1.26
Breakeven Analysis:
Break-even quantity 31,077
Total fixed costs 10,000,000
Break-even ratio 28.3%
Variable cost per unit 172.7
Margin of safety 71.7%
Unit price 320
Break-even value 9,944,727

Objectives and recommendations for the next period:

Department Target Objective Improvement Recommendations
• Reducing fixed cost
Improve profit ratio from 21% to 25% • Reducing overhead cost
• Reducing production cost
Financial • Improving financial position
Reduce Average unit cost from 263 to •
250 LE/unit •
•
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 437
Question #4: Product Cost Analysis:
A manager is trying to decide between two machines (A or B):
Item A B
Fixed cost, $ 40,000 30,000
Variable cost; $/unit 10 12
Revenue Per Unit, $/unit 15 16
a) Determine the breakeven points
b) If expected annual demand is 12,000 units, which alternative
yields a higher profit
c) At what quantity will the two machines yield the same profit

Question? A B
a) Determine the breakeven points 8,000 7,500
a) If expected annual demand is 12,000 units, which
20,000 18,000
alternative yields a higher profit
a) At what quantity will the two machines yield the
10,000
same profit
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 438
Question #5: Marketing Forecasting
The market information for a product is as follows:
Average Market Price Sales Quantity
# Year (LE/unit) (units)
1 2014 89 19,500
2 2015 80 20,000
3 2016 93 22,000
4 2017 87 20,000
5 2018 100 30,000
6 2019 106 32,000
7 2020 112 33,000

Based on this information, discuss the following:

a) Data trends
b) Forecast accuracy
c) Forecast for the next 3 years
d) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 439
 Market Forecasting - Linear Trend Model

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 440
Excel  Select Data  Data  Forecast Sheet
Average Market Price (LE/unit)
Forecast Lower Upper
# Year
Value Forecast Forecast

8 2021 115 102 128

9 2022 120 105 134

10 2023 124 108 140

Sales Quantity (units)

Forecast Lower Upper
# Year
Value Forecast Forecast

8 2021 35,928 30,307 41,550

9 2022 38,511 32,715 44,307

10 2023 41,094 35,127 47,060

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 441
Objectives and recommendations for the next period:
Department Target Objective Improvement Recommendations
•
•
•
Sales &
•
Market
•
•
•

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 442
Question #6: Marketing Forecasting
The market information for a product is as follows:
Average Market Price Sales Quantity
# Year (LE/unit) (units)
1 2016 80 18,000
2 2017 87 20,000
3 2018 98 25,000
4 2019 115 32,000
5 2020 130 38,000

Based on this information, discuss the following:

a) Data trends
b) Forecast accuracy
c) Forecast for the next 2 years
d) If the expected sales quantity 50,000 units for the next
year, forecast the average market price.
e) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 443
Question #7: MRP:
A company produces two products A and B that are made from two components
C and D. Each A consists of 5 C’s and 4 D’s. Each B consists of 3 C’s and 2 D’s.

 Annual Master Production Schedule (MPS):

Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 400 0 400 0 400 0 400 0 0
Gross Requirements for B 0 0 400 0 400 0 400 0 400 0 400 0

 Inventory Status Records:

Stock on Lead Time Lot Size Safety Open Unit Cost
Item Type ID
Hand (month) (units) Stock Orders (LE/unit)
A 1000 1 1000 200 0 2000
Products
B 1500 1 1000 200 0 1200
C 2000 2 1000 200 1000, m1 200
Materials
D 1000 2 1000 200 1000, m1 100
Based on this information, discuss the following:
a) Calculate direct material cost for each product.
b) Construct MRP tables (assembly & material plans)
c) Inventory turnover & inventory weeks of supply
d) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 444
 Annual Master Production Schedule (MPS):
Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 400 0 400 0 400 0 400 0 0
Gross Requirements for B 0 0 400 0 400 0 400 0 400 0 400 0

Bill of Quantity (BOQ): A B

C,5 D,4 C,3 D,2

 Annual Quantity:
A = 2,000 B = 2,000 C = 5 A + 3 B = 5*2,000 + 3*2,000 = 20,000
D = 4 A + 2 B = 4*2,000 + 2*2,000 = 12,000

 Direct Material Cost for each product:

Direct Material Cost to produce 2,000 A = 2,000 (5 C + 4 D)

= 10,000 C + 8,000 D = 10,000 *200 + 8,000 * 100 = 2,800,000 LE
Unit Material Cost = 1,400 LE/unit A

Direct Material Cost to produce 2,000 B = 2,000 (3 C + 2 D)

= 6,000 C + 4,000 D = 6,000 *200 + 4,000 * 100 = 1,600,000 LE
Unit Material Cost = 800 LE/unit B
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 445
MRP Tables:
Item : A On Hand 1000 Safety Stock 200 Lead Time 1 Lot Size 1000 S. Rec. (0)
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross Req. for A 0 400 0 400 0 400 0 400 0 400 0 0
Schedule Receipts
Stock On Hand 1000 1000 600 600 200 200 800 800 400 400 1000 1000 1000
Net Requirements 400 200
P. Order Receipt 1000 1000
P. Order Release 1000 1000
Average inventory quantity for item A = 692 units (Average)
Average inventory cost for item A = Quantity * Unit Cost = 1,038,462 LE
Item : B On Hand 1500 Safety Stock 200 Lead Time 1 Lot Size 1000 S. Rec. (0)
Period (month) 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross Req. for B 0 0 400 0 400 0 400 0 400 0 400 0
Schedule Receipts
Stock On Hand 1500 1500 1500 1100 1100 700 700 300 300 900 900 500 500
Net Requirements 300
P. Order Receipt 1000
P. Order Release 1000
Average inventory quantity for item B = 885 units (Average)
Average inventory cost for item B = Quantity * Unit Cost = 1,062,000 LE
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 446
MRP Tables:

Item : C On Hand 2000 Safety Stock 200 Lead Time 2 Lot Size 1000 S. Rec. (1000,m1)
Period (month) Open 1 2 3 4 5 6 7 8 9 10 11 12
A B A
1000 1000 1000
*5 *3 *5
= = =
Gross Req. for A 5000 3000 5000
Schedule Receipts 1000
Stock On Hand 2000 3000 3000 3000 3000 1000 1000 1000 1000 1000 1000 1000 1000
Net Requirements 2200 2200 4200
P. Order Receipt 3000 3000 5000
P. Order Release 3000 3000 5000

Average inventory quantity for item C = 1692 units (Average)

Average inventory cost for item C = Quantity * Unit Cost = 338,400 LE

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 447
MRP Tables:

Item : D On Hand 1000 Safety Stock 200 Lead Time 2 Lot Size 1000 S. Rec. (1000,m1)
Period (month) Open 1 2 3 4 5 6 7 8 9 10 11 12
A B A
1000 1000 1000
*4 *2 *4
= = =
Gross Req. for A 4000 2000 4000
Schedule Receipts 1000
Stock On Hand 1000 2000 2000 2000 2000 1000 1000 1000 1000 1000 1000 1000 1000
Net Requirements 2200 1200 3200
P. Order Receipt 3000 2000 4000
P. Order Release 3000 2000 4000

Average inventory quantity for item C = 1,308 units (Average)

Average inventory cost for item C = Quantity * Unit Cost = 130,800 LE

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 448
 Inventory Policy (Planned Order Release)
(When to order? & How much to order?)
Period (month)
Item
1 2 3 4 5 6 7 8 9 10 11 12
A 1000 1000
B 1000
C 3000 3000 5000
D 3000 2000 4000

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 449
Average Inventory Value:
Item Average Level Unit Cost Total Value
Item Type Item Name
ID (unit) (LE/unit) (LE)
Raw C C 1,692 200 338,462
Materials D D 1,308 100 130,769
Work In
Process

Final A A 692 2,000 1,384,615

Products B B 885 1,200 1,061,538
Average Inventory Value 2,915,385

Inventory Turnover = Annual Cost of Sales / Average Inventory Value

Annual Cost of Sales = (2000 * 2000 + 2000 * 1200) = 6,400,000 LE

Inventory Turnover = 6,400,000 / 2,915,385 = 2.2 turns / year

Inventory Weeks of supply = 52 weeks / 2.2 turns = 23.6 weeks/turn

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 450
Objectives and Recommendations for the Next Period:

Dep Objectives Recommendations

Raw
Materials
Inventory
Final
Products
Inventory

Operations

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 451
Question #8: MRP:
A company produces two products A and B that are made from two components
C and D. Each A consists of 5 C’s and 4 D’s. Each B consists of 3 C’s and 2 D’s.

 Annual Master Production Schedule (MPS):

Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 500 0 500 0 500 0 500 0 500 0 0
Gross Requirements for B 0 0 600 0 600 0 600 0 600 0 600 0

 Inventory Status Records:

Stock on Lead Time Lot Size Safety Open Unit Cost
Item Type ID
Hand (month) (units) Stock Orders (LE/unit)
A 500 1 500 200 0 2000
Products
B 500 1 600 200 0 1200
C 1000 2 1000 500 1000, m1 200
Materials
D 1000 2 1000 500 1000, m1 100

Based on this information, discuss the following:

a) Calculate direct material cost for each product.
b) Construct MRP tables (assembly & material plans)
c) Inventory turnover & inventory weeks of supply
d) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 452
Question #9: Inventory Control:
The stock information for an item is as follows:
Container
Open Inventory 10,000 units
Supplier Lot Size 1,000 units
Unit Material Cost 20 $/unit
Average Order Cost 3,000 $/order
Average Carrying Cost per Unit 3 $/year
Service Level 95%
Inventory History 2020
Monthly Monthly Delivery Lead time (Days)
Month
Working Days Demand (units) 1 38
Jan 25 22,500 2 37
Feb 23 23,000 3 38
Mar 26 20,800
4 40
Apr 25 27,500
5 33
May 26 23,400
June 25 30,000 6 28

Based on this information, discuss the following:

a) Optimal order quantity & Number of Orders
b) Safety Stock & Reorder level
c) Average Inventory & Annual Inventory Cost
d) Annual Direct Material Cost
e) End Inventory & Stock Control Chart
f) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 453
 Optimal order quantity
Annual Demand (2 * 6M) 294,400 Unit/year
Average Order Cost 3,000 $/order Q = 24,266
Average Carrying Cost per Unit 3 $/year
Q = 24,000 or 25,000
Safety Stock (SS) Calculation - Normal Distribution Method
Average Demand Rate per day d 983.3
Demand Standard Deviation σd 147.2
Average Lead Time (day) L 35.7
Lead-time Standard Deviation σL 4.41
Service Level (85% to 99%) P 95%

SS = Z * SQRT((L * σd^2)+(d * σL)^2))

SS = 1.64 * SQRT((35.7*147.2^2)+(983.3*4.41)^2) = 7,281
R = SS + L * d
R = 7,281 + 983.3 * 35.7 = 42,354 units
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 454
 Annual Demand (2 * 6M) 294,400 Unit/year
Average Order Cost 3,000 $/order Q = 24,266
Average Carrying Cost per Unit 3 $/year

Q = 24,000 or 25,000
Fixed Order Quantity = 24,000 Units
n = Number of Orders = 294,4000 / 24,000 = 12.27 = 13 orders/year
Annual Inventory Cost = n*Co +(SS + Q/2) Cc
= 13*3,000+ (50+100/2)*1.5= $ 250

Fixed Order Quantity = 150 Units

n = Number of Orders = 1000 / 150 = 6.7 = 7 orders/year

Annual Inventory Cost = 7*10+ (50+150/2)*1.5= $ 257.5
The Best Order Quantity = 100 Units
“Neglect the open inventory & end inventory”

Annual Material Cost = Annual demand * Unit Cost = 1000 * 100 = $ 100,000
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 455
Question #10: Procurement & Supplier Selection:
A manager is trying to decide between four alternatives (A, B ) to select the best supplier.

Relative Supplier
Criteria of selection
weight A B
Financial 1- Price 30 110 LE/unit 125 LE/unit
Acceptable Lots = 9 Acceptable Lots = 9
2- Quality
30 Total Lots = 10 Total Lots = 10
Technical
Ontime = 10 Ontime = 8
Factors 3- Delivery
25 Total = 10 Total = 11
Satisfied = 8 Satisfied = 9
(Must) 4- Service
10 Total = 10 Total = 11
Requests = 5 Requests = 6
5- Support
5 Total = 5 Total = 7
Based on this information, discuss the following:
a) Evaluate the suppliers
b) Select the best supplier
c) Construct the procurement plan template
d) Construct the procurement contract template
e) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 456
 Relative Supplier
Criteria of selection
weight A B
110 LE/unit 125 LE/unit
Financial 1- Price
30 30 (min.) (110/125)*30 = 26.4
Acceptable Lots = 9 Acceptable Lots = 9
2- Quality Total Lots = 10 Total Lots = 10
30 (9/10) * 30 = 27 (9/10) * 30 = 27
Ontime = 10 Ontime = 8
Technical
3- Delivery Total = 10 Total = 11
Factors
25 (10/10)*25 = 25 (8/11) * 25 = 18.18
Satisfied = 8 Satisfied = 9
(Must)
4- Service Total = 10 Total = 11
10 (8/10) * 10 = 8 (9/11) *10 = 8.18
Requests = 5 Requests = 6
5- Support Total = 5 Total = 7
5 (5/5) * 5 = 5 (6/7) * 5 = 4.29
Evaluation 100 95% 84%
Ranking 1 2

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 457
 Procurement Plan Template
Product / Service: Period:
Supplier Item Item Quantity Total Contract Time Delivery .
#
ID ID Type Units Cost ID Days Date .

1) Scope & Definition

5) Warranty
Procurement 2) Parties to the contract
3) Responsibilities 6) Termination
Contract 4) Main Clauses:
• Item Description 7) Law Applicable
• Quantities
(Material • Quality Standards
8)
Supply • Ordering Procedure 9)
• Prices & Total Cost
Contract) • Schedule & Timeline 10)
• Payment terms 11)
• Change Orders
• Claims; … etc. 12)
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 458
Question #11: Procurement & Supplier Selection:
A manager is trying to decide between four alternatives (A, B ) to select the best supplier.

Relative Supplier
Criteria of selection
weight A B
Financial 1- Price 10 110 LE/unit 125 LE/unit
Acceptable Lots = 9 Acceptable Lots = 9
2- Quality 6
Total Lots = 10 Total Lots = 10
Technical 3- Delivery Ontime = 10 Ontime = 8
5
Factors Total = 10 Total = 11
Satisfied = 8 Satisfied = 9
4- Service 4
(Must) Total = 10 Total = 11
Requests = 5 Requests = 6
5- Support 3
Total = 5 Total = 7
6- Payments 2 Good (6/10) Very Good (8/10)
Based on this information, discuss the following:
a) Evaluate the suppliers
b) Select the best supplier
c) Construct the procurement plan template
d) Construct the procurement contract template
e) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 459
Question #12: Operation Planning – Lean Approach:
A machining process has the following activities during a work order:
Actual Time Actual Time
# Main Activity # Main Activity
(min) (min)
1 W/o Preparation 20 10 Inspection 15
2 Material Receipt 20 11 Rework 30
3 Material Inspect 20 12 Machine (C) startup 30
4 Material Handling 20 13 Process (C) 60
5 Machine (A) startup 20 14 Inspection 30
6 Process (A) 90 15 Rework 30
7 Waiting Materials 30 16 Packing Process (D) 30
8 Machine (B) Startup 30 17 Material Handling 20
9 Process (B) 60 18 W/o Close-Out 20

Based on this information, discuss the following:

a) Value added time analysis b) Value stream mapping
c) How to improve the process?
d) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 460
Value Added Times Analysis:
Actual Time Value Non-Value
# Main Activity Waste Target
(min) Added Added
1 W/o Preparation 20 20 10
2 Material Receipt 20 20 10
3 Material Inspect 20 20 10
4 Material Handling 20 20 10
5 Machine (A) startup 20 20 10
6 Process (A) 90 90 90
7 Waiting Materials 30 30 0
8 Machine (B) Startup 30 30 15
9 Process (B) 60 60 60
10 Inspection 15 15 7.5
11 Rework 30 30 0
12 Machine (C) startup 30 30 15
13 Process (C) 60 60 60
14 Inspection 30 30 15
15 Rework 30 30 0
16 Packing Process (D) 30 30 30
17 Material Handling 20 20 10
18 W/o Close-Out 20 20 10
Total Time 575 240 245 90 362.5
% 100 41.7% 42.6% 15.7% 63.0%
Time Saving = 575 – 362.5 = 212.5 Hours = 36.9 %  Improve Efficiency 36.9%
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 461
 Value Stream Mapping
Current:
Weekly Production
Order Monthly
Control Order
Supplier
MRP Customer

Weekly Daily
Daily Daily Order
Order Order Monthly

KAIZEN

Process Process Process Process

A B C C
Lead Time:
100 90 60 60 75 60 60 30 40
Current:

50 90 15 60 22.5 60 15 30 20
Target

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 462
 Improve Recommendations
• Objective:
Improving Value Added Time % from 41.7 % to 80%
Through Reducing Non-Value Added Time
• Planned Period: Quarter (from x to y month)
Improvement Recommendations:
# Recommendations Activities (Top Priorities)
1 Standard Time Process A,B,C, D
2 Standard Information W/o , Mat. Receipt
3 Standard Templets W/o, Mat. Receipt, Insp.
4 Work Statement & QA/QC Insp.
5 Planned Maintenance Program Machines A,B,C,D
6 Advanced Training Program Productive Labor
7 Visual Stock (5 S) Site
8 Motivation Program All staff

KAIZEN  Change Management

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 463
Question #13: Operation Planning – Lean Approach:
A machining process has the following activities during a work order:
Actual Time Actual Time
# Main Activity # Main Activity
(min) (min)
1 W/o Preparation 20 11 Inspection 15
2 Material Receipt 20 12 Rework 30
3 Waiting Mat. Handling 20 13 Machine (C) startup 30
4 Material Handling 20 14 Process (C) 60
5 Machine (A) startup 20 15 Inspection 30
6 Process (A) 90 16 Rework 30
7 Routine Maintenance 30 17 Packing Process (D) 30
8 Machine (B) Startup 30 18 Final Inspection 20
9 Process (B) 60 19 Material Handling 20
10 Waiting Inspection 20 20 W/o Close-Out 20

Based on this information, discuss the following:

a) Value added time analysis b) Value stream mapping
c) How to improve the process?
d) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 464
Supply Chain Management (SCM)

Test Exam #2

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Question #1: Business KPIs & Current Situation Analysis:
The following information for a car assembly plant in Egypt (2016):
Sales & Market Information:
• Annual Sales Quantity = 10,000 Units/year
• Net Sales Revenue = 1,100,000,000 LE/year
• Annual Sales of the Market = 70,000 units/year
Operation Information:
• Annual Standard Capacity = 20,000 units / year
• Annual Production Capacity = 11,000 units / year
• Annual Production Cost = 1,100,000,000 LE/year
Inventory Information:
Types of Inventory Open End
Material Inventory Value ; LE 45,000,000 40,000,000
WIP Inventory Value ; LE 60,000,000 50,000,000
Product Inventory Value ; LE 85,000,000 75,000,000
Industry
Perspective Indicators Equation Average Target
Financial Profit (Unit price – Unit cost) / Unit cost 15% 18%
Market Market Share Sales quantity / Sales of the market 20% 22%
Capacity
Operations Utilization Net production / Standard capacity 70% 75%
Inventory Annual cost of sales /
Materials Turnover Average inventory value 6 8

Based
SCM on this Supply
information, discuss KPIs,
Chain Management objectives
Best Practice and
- Dr. Attia recommendations..
Gomaa - 2022 466
Question #2: Product Cost Analysis:
The cost classification matrix for a project (First year 2018)
is as follows:
Product: LCD TV Unit Price = 320 $/unit
Planned Capacity = 120,000 units/year
$1,000,000 Cost Classification Matrix
Cost Elements Fixed Cost Variable Cost
Raw Materials 11
Direct Costs Technical labors 2 3
Productive Equipment 6 4
Technical Overhead 1 1
Overheads
Office Overhead 1 -
Based on this information, discuss the following:
a) Cost breakdown structure
b) Cost Indicators (Profit, Value Added, Margin, Markup)
c) Break even ratio & Margin of safety
d) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 467
Question #3: Marketing Forecasting
The market information for a product is as follows:
Average Market Price Sales Quantity
# Year
(LE/unit) (units)
1 2014 89 19,500
2 2015 80 20,000
3 2016 93 22,000
4 2017 87 20,000
5 2018 100 30,000
6 2019 106 32,000
7 2020 112 33,000

Based on this information, discuss the following:

a) Data trends
b) Forecast accuracy
c) Forecast for the next 3 years
d) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 468
Question #4: MRP:
A company produces two products A and B that are made from two components
C and D. Each A consists of 5 C’s and 4 D’s. Each B consists of 3 C’s and 2 D’s.

 Annual Master Production Schedule (MPS):

Period (month) 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements for A 0 400 0 400 0 400 0 400 0 400 0 0
Gross Requirements for B 0 0 400 0 400 0 400 0 400 0 400 0

 Inventory Status Records:

Stock on Lead Time Lot Size Safety Open Unit Cost
Item Type ID
Hand (month) (units) Stock Orders (LE/unit)
A 1000 1 1000 200 0 2000
Products
B 1500 1 1000 200 0 1200
C 2000 2 1000 200 1000, m1 200
Materials
D 1000 2 1000 200 1000, m1 100
Based on this information, discuss the following:
a) Calculate direct material cost for each product.
b) Construct MRP tables (assembly & material plans)
c) Inventory turnover & inventory weeks of supply
d) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 469
Question #5: Inventory Control:
The stock information for an item is as follows:
Container
• Unit Material Cost = $100 / unit
• Average Order Cost = $200 / order
• Average Carrying Cost per Unit = $10/year
• Open Inventory = 1000 units
• Supplier Lot Size = 1000 units
• Service Level = 95%
Inventory History 2019
Month Demand (units) Delivery Lead time (Days)
Jan 900 1 38
Feb 1,000 2 37
Mar 800 3 38
Apr 1,100 4 40
May 900 5 33
June 1,200 6 28
Based on this information, discuss the following:
a) Optimal order quantity & Number of Orders
b) Safety Stock & Reorder level
c) Average Inventory & Annual Inventory Cost
d) Annual Direct Material Cost
e) End Inventory & Stock Control Chart
f) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 470
Question #6: Procurement & Supplier Selection:
A manager is trying to decide between four alternatives (A, B ) to select the best supplier.

Relative Supplier
Criteria of selection
weight A B
Financial 1- Price 30 110 LE/unit 125 LE/unit
Acceptable Lots = 9 Acceptable Lots = 9
2- Quality
30 Total Lots = 10 Total Lots = 10
Technical
Ontime = 10 Ontime = 8
Factors 3- Delivery
25 Total = 10 Total = 11
Satisfied = 8 Satisfied = 9
(Must) 4- Service
10 Total = 10 Total = 11
Requests = 5 Requests = 6
5- Support
5 Total = 5 Total = 7
Based on this information, discuss the following:
a) Evaluate the suppliers
b) Select the best supplier
c) Construct the procurement plan template
d) Construct the procurement contract template
e) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 471
Question #7: Operation Planning – Lean Approach:
A machining process has the following activities during a work order:
Actual Time Actual Time
# Main Activity # Main Activity
(min) (min)
1 W/o Preparation 20 10 Inspection 15
2 Material Receipt 20 11 Rework 30
3 Material Inspect 20 12 Waiting M. Handling 30
4 Waiting M. Handling 20 13 Material Handling 60
5 Material Handling 20 14 Packing Process (B) 30
6 Machine (A) startup 90 15 Final Inspection 30
7 Process (A) 30 16 Waiting M. Handling 30
8 Routine Maintenance 30 17 Material Handling 20
9 Process (A) 60 18 W/o Close-Out 20

Based on this information, discuss the following:

a) Value added time analysis b) Value stream mapping
c) How to improve the process?
d) Objectives and recommendations for the next period
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 472
References……

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 473
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 474
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 475
References……

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 476
References……
Where can I learn more about Lean Six Sigma ?
These 3 books are quick reads…

Leaning into Six Sigma

The Gold Mine
- by Freddy Ballé and Michael Ballé (paperback)

- The Gold Mine: a Novel of Lean by Barbara Wheat,

Turnaround deftly weaves together the technical Chuck Mills, Mike
and human pieces of implementing lean Carnell
manufacturing in an engaging story that readers
will find both compelling and instructive.
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 477
References……
• George, Michael. (2002). Lean Six Sigma:
Combining Six Sigma Quality with Lean Speed,
New York: McGraw-Hill.
• Rother, M. and Shook, J. (2003). Learning
to See: Value Stream Mapping to Create Value
and Eliminate Muda, Brrookline, MA: The
Lean Institute.
• Pande, P, Neuman,R.P., and Cavanagh,R.R.
(2000). The Six Sigma Way, New
York:McGraw Hill.
• Bossert , James. ( July 2003) “Lean and Six
Sigma--Synergy Made in Heaven” Quality
Progress.
• Goldratt, Eliyahu M., (1994). The Goal: A Also...you might consider:
Process of Ongoing Improvement, second
edition. Great Barrington, MA: North River • www.6-sigma.com
Press.
• www.sixsigma.co.uk
• Womack, James P. and Daniel T. Jones.
(2003). Lean Thinking: Banish Waste and • www.sixsigmasystems.com
Create Wealth in Your Corporation. New York:
Simon & Schuster. • www.isixsigma.com
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SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 479
 Made in Egypt - ‫صنع في مصر‬
‫ أحفظ مصر وأهل مصر من كل سوء – اللهم أمين‬- ‫اللهم يا حفيظ‬
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 480
SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 481
Thank you for your attention! Useful Science For
the Sake of Allah

Suggestions Comments
‫اللهم تقبل هذا العلم‬

Questions

Copyrights of this file & More information:

Dr. Attia Gomaa

Prof. & Consultant of Industrial Eng. & Project Management
Faculty of Engineering - Shoubra - Benha University &
ESS - American University in Cairo
[email protected] or [email protected]
Tel: 01222738497

SCM Supply Chain Management Best Practice - Dr. Attia Gomaa - 2022 482