Key elements and

Processes
What is a Supply Chain?
• Customer is an integral part of the supply chain
• Includes movement of products from suppliers to
manufacturers to distributors, but also includes
movement of information, funds, and products in both
directions
• Probably more accurate to use the term “supply
network” or “supply web”
• Typical supply chain stages: customers, retailers,
distributors, manufacturers.
• All stages may not be present in all supply chains
(e.g., no retailer or distributor for Dell)
The Objective
of a Supply
Chain
• Maximize overall value created
• Supply chain value: difference
between what the final product is
worth to the customer and the effort
the supply chain expends in filling the
customer’s request
• Value is correlated to supply chain
profitability (difference between
revenue generated from the customer
and the overall cost across the supply
chain)
The Objective of a Supply Chain
• Example: Dell receives $2000 from a customer for a
computer (revenue)
• Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
• Difference between $2000 and the sum of all of these
costs is the supply chain profit
• Supply chain profitability is total profit to be shared
across all stages of the supply chain
• Supply chain success should be measured by total
supply chain profitability, not profits at an individual
stage
Decision Phases of a Supply Chain
• Supply chain strategy or design
• Supply chain planning
• Supply chain operation
Supply Chain Strategy or Design
• Decisions about the structure of the supply chain and
what processes each stage will perform
• Strategic supply chain decisions
• Locations and capacities of facilities
• Products to be made or stored at various locations
• Modes of transportation
• Information systems
• Supply chain design must support strategic objectives
• Supply chain design decisions are long-term and
expensive to reverse – must take into account market
uncertainty
Supply Chain
Planning
• Definition of a set of policies that
govern short-term operations
• Fixed by the supply configuration
from previous phase
• Starts with a forecast of demand
in the coming year

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Supply Chain Operation
• Time horizon is weekly or daily
• Decisions regarding individual customer orders
• Supply chain configuration is fixed and operating
policies are determined
• Goal is to implement the operating policies as
effectively as possible
• Allocate orders to inventory or production, set order
due dates, generate pick lists at a warehouse, allocate
an order to a particular shipment, set delivery
schedules, place replenishment orders
• Much less uncertainty (short time horizon)
What Is
Operations ♦ Operations management is the
Management? management of systems that produce goods
and provide services.
♦ It includes planning, designing and operating systems to achieve
goals of the organization.

Book definition (not as good): The set of activities that

creates goods and services by transforming inputs
into outputs.
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 Productivity
♦ Used to measure of process improvement.
♦ Amount of output relative to input.
Units produced
Productivity =
Inputs used

♦ Productivity increases improve standard of

living.

1-10
How Would You
Measure Productivity
for A Restaurant?

• Amount of output (????) per input

(????).
• Output:
• Number of meals served?
• Number of tables served?
• Number of satisfied customers?
• Input:
• Lbs. of food?
• Number of employees?
• Number of tables?

1-11
Productivity for One Product
Units produced
Productivity =
Inputs used
♦ Output is easy to measure with one product.
♦ Input may have many components.
♦ Parts and subassemblies.
♦ Labor.
♦ Equipment.
♦ Knowledge.
♦ etc.
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Productivity Variables

Output
Productivity =
Labor + material + energy + capital +
miscellaneous

♦ Use a common measure to combine different

inputs - usually $.

1-13
Productivity
Measurement
Problems
• Quality of output should be
considered.
• If you produce more, but of lower
quality, does productivity rise?
• External elements may change
productivity.
• Wireless communication may
raise productivity.
• Precise units of measure may be
lacking.

1-14
How Would You Measure Productivity
Units produced
Productivity =
Inputs used

♦ What is output?
♦ How is it measured?

♦ What is input?
♦ How is it measured?
How Would You Measure
Productivity for:
• A builder of new homes?
• An automobile mechanic?
• A hospital?
• A fire department?
• A restaurant?

1-16
Production
/Operations

Planning & Control

❖ Production is a process whereby raw material is
converted into semi finished products and thereby
adds to the value of utility of products, which can be
measured as the difference between the value
of inputs and value of outputs.

❖ Production function encompasses the activities of

procurement, allocation and utilization of resources.
The main objective of production function is to
produce the goods and services demanded by the
customers in the most efficient and economical way.
•Production/Operations Planning involves the organization of an overall manufacturing
system to produce a product.

The various activities involved are:

❖ Designing a product
❖ Determining the equipment & capacity requirements
❖ Designing the layout of physical facilities.
❖ Designing material handling system
❖ Designing sequence of operations
 The three major factors determining
production planning procedures are:

• Volume of production: The amount & and

intensity of production planning are determined by
Factors the volume and character of the operations & and
the nature of the manufacturing process.
determining Production planning is expected to reduce
manufacturing costs.

Production • Nature of production Process: In a job shop, the

production planning may be informal and the
Planning development work methods are left to an individual
workman who is highly skilled

Procedures • Nature of operations: Detailed production

planning is required for repetitive
operations for example continuous
production of a single standardized product
 •Importance of Control function:

❖Provide the production of parts , assemblies &

products of the required quantity and quality at
the required time

❖Co-ordinate, monitor, and feedback to

Production manufacturing management, on the result of
production activities, analyzing and
interpreting their importance & and taking
Control correct actions

❖ Provide optimum utilization of all resources

❖Achieve the broad objectives of low-cost

production and reliable customer service
 •Benefits of Control function:
•Improvement in profit through:
1. Maintenance of balance inventory of material
2. Balanced and stabilized production
3. Maximum utilization of equipment
Production 4. Minimum investment in inventory

Control 5. Reduction in set up cost

6. Reduction in scrap
7.Minimum investment in inventory
8.Reliable delivery to customer
9. Shortened delivery schedule to customer
10. Lower production costs
Elements of
Production Control of Control of Control of
Control Planning: Materials tooling

Control of
Control of Control of
manufacturing
activities Quantity
capacity

Control of
Control of due Control of
material
dates information
handling
MRP (Material Requirement planning)
• MRP is a technique for planning industrial production. It
detects essential materials, calculates amounts, decides
when items are needed to match the production schedule,
and regulates the supply schedule to meet demand and
enhance overall productivity.

• An MRP system’s basic functions generally include:

• Stock Management
• Production Planning
• Inventory Management
• Management of the Supply Chain.
MRP2
• Manufacturing Resource Planning (MRP II) is
an integrated information system used by
businesses. Manufacturing Resource Planning
(MRP II) evolved from early Materials
Requirement Planning (MRP) systems by
including the integration of additional data,
such as employee and financial needs
• The system is designed to centralize, integrate,
and process information for effective decision
making in scheduling, design
engineering, inventory management, and cost
control in manufacturing
Difference Of
MRP AND MRP2
MRP I
• MRP I included the following three major functionalities:
• master production scheduling
• bill of materials
• inventory tracking

MRP II
• MRP II includes those three, plus the following:
• machine capacity scheduling
• demand forecasting
• quality assurance
• general accounting
MPS
A master production schedule (MPS) delineates what
products a manufacturer will produce, when and in what
quantities. An MPS links sales demand with manufacturing
capacity.
The purpose of master production scheduling is to create
a realistic plan that minimizes overstock while maximizing
on-time delivery.
Bill of materials (BOM)

• A bill of materials (BOM) is a comprehensive

inventory of the raw materials, assemblies,
subassemblies, parts, and components, as well as
the quantities of each needed to manufacture a
product. In a nutshell, it is the complete list of all
the items that are required to build a product.
• BOMs also include the instructions for procuring
and using the materials. A BOM is sometimes
referred to as a product structure, assembly
component list, or production recipe (in process
manufacturing industries).
What are the advantages of using a BOM?

• A BOM makes the manufacturing process accurate and efficient. It lays out a detailed plan that
can be easily followed.
• A well-defined BOM helps companies with the following aspects of the production process:

• plan purchases of raw materials;

• track and plan material requirements;
• estimate material costs;
• manage inventory;
• stay alert to materials shortages, expediting charges and planned and unplanned downtime;
• control budget;
• stay on schedule;
• maintain records;
• reduce waste;
• identify the cause of a product failure;
• replace faulty components fast;
• find vulnerabilities in software components; and
• improve supply chain security.