Basics of Supply Chain Management Session 1 Introduction

Basics of Supply Chain Management Session 1 Introduction to Supply Chain Management APICS Certified in Production and Inventory Management (CPIM) and Proprietary 1© • 1 APICS©Confidential APICS Confidential and Proprietary

Course Objectives § Provide a review of supply chain management from a manufacturing, planning, and control perspective. § Provide a basis for further study leading to APICS CPIM certification. 1 • 2 © APICS Confidential and Proprietary

Basics of Supply Chain Management 2. 1. 3. 4. 5. Introduction to Supply Chain Management Demand Management Master Planning Material Requirements Planning Capacity Management and Production Activity Control Aggregate Inventory Management Item Inventory Management Purchasing and Physical Distribution Lean and Quality Systems Theory of Constraints 6. 7. 8. 1 • 3 © APICS Confidential and Proprietary 9. 10.

Learning Objectives § Introduction to Manufacturing − Explain the significance of the United Nations (UN) Global Compact. − Describe the components of the manufacturing business model. − Describe the impact of four significant aspects of the business environment on manufacturing. § Manufacturing Environments and Process Choices − Explain five manufacturing environments and their determinants. − Explain the differences among the three process choices. § The Manufacturing Supply Chain − − Differentiate between internal and external supply chains. Differentiate between conventional and cross-functional supply chains. Explain common supply chain conflicts and how to resolve them. Explain the relationship between strategic, tactical, and operational performance measures. − Explain the role of materials management. 1 • 4 © APICS Confidential and Proprietary

Learning Objectives (cont. ) § Manufacturing Planning and Control − Identify five objectives of manufacturing. − Describe the concepts of priority and capacity. − Present an overview of the manufacturing planning and control (MPC) hierarchy. − Describe the four steps in the evolution of MRP to ERP. § The Impact of New Systems and Philosophies − Present a high-level description of lean, total quality management (TQM), six sigma, and theory of constraints (TOC). 1 • 5 © APICS Confidential and Proprietary

Session 1 Introduction to Supply Chain Management Introduction to Manufacturing 1 • 6 © APICS Confidential and Proprietary

Role of Manufacturing Adding value creates wealth Raw material Product Value to the customer 1 • 7 © APICS Confidential and Proprietary

United Nations Global Compact § Voluntary strategic policy initiative for businesses § Alignment of business operations with principles in four areas: − − human rights labor practices environment anti-corruption § Adoption of UN Global Compact Management Model Source: United Nations Global Compact: Corporate Sustainability in the World Economy, February 2011 1 • 8 © APICS Confidential and Proprietary

Ten Principles Human rights 1 – Support and protect internationally proclaimed human rights. 2 – Ensure non-complicity in human rights abuses. 3 – Uphold freedom of association and right to collective bargaining. Labor practices 4 – Eliminate forced and compulsory labor. 5 – Abolish child labor. 6 – Eliminate discrimination in employment and occupation. 7 – Support a cautionary approach to environmental challenges. Environment 8 – Promote greater environmental responsibility. 9 – Encourage the development and diffusion of environmentally friendly technologies. Anti-corruption 10 – Work against corruption in all of its forms including extortion and bribery. Source: United Nations Global Compact: Corporate Sustainability in the World Economy, February 2011 1 • 9 © APICS Confidential and Proprietary

UN Global Compact Management Model Commit Leadership commitment to mainstream Global Compact principles. Communicate Assess Communicate progress and strategies; engage stakeholders. Assess risks, opportunities, and impacts. Measure Define Measure and monitor impacts and progress toward goals. Define goals, strategies, and policies. Implement strategies and policies across the company and supply chain. Source: United Nations Global Compact Management Model: Framework for Implementation, June 2010 1 • 10 © APICS Confidential and Proprietary

Manufacturing Business Model § Defining products and customers § Designing products and processes § Managing material flow § Providing customer service and support 1 • 11 © APICS Confidential and Proprietary

Customers and Products Product definition Positioning Breadth of product line Price Quality Brand name or generic Design Packaging Returns policy Product design 1 • 12 Customer definition Types of customers: • industrial • consumer • institutional • government Market segmentation Sales channels Market share/profitability Choice of manufacturing environment (ETO, MTO, ATO, MTS) Choice of manufacturing process (project, intermittent, repetitive flow, continuous flow) © APICS Confidential and Proprietary

Designing Products and Processes Meet customer needs Cost effectiveness Quality DESIGN Accommodate planning parameters 1 • 13 © APICS Confidential and Proprietary Efficiency

Managing Material Flow Material acquisition Manufacturing Distribution 1 • 14 © APICS Confidential and Proprietary

Providing Customer Service and Support § Understanding and meeting customer wants and needs § Two-way communication § Working with customers to solve problems 1 • 15 © APICS Confidential and Proprietary

Global Environment § Global competition § Economic, government, and regulatory influences § Customer expectations § Corporate social responsibility 1 • 16 © APICS Confidential and Proprietary

Customer Expectations Characteristics that provide value to the customer: § Cost (price) § Quality § Speed (order lead time) § Dependability § Flexibility (product and volume) 1 • 17 © APICS Confidential and Proprietary

Corporate Social Responsibility and Sustainability Corporate social responsibility Human rights Labor practices Environment Anti-corruption 1 • 18 © APICS Confidential and Proprietary Sustainability Responsible economic growth that benefits all segments of society in an equitable manner

Session 1 Introduction to Supply Chain Management Manufacturing Environments and Process Choices 1 • 19 © APICS Confidential and Proprietary

Manufacturing Environments § Engineer-to-order (ETO) § Make-to-order (MTO) § Assemble-to-order (ATO) § Make-to-stock (MTS) § Mass customization 1 • 20 © APICS Confidential and Proprietary

Determinants of Manufacturing Environments § Lead time expectations § Product design input from customers § Product volume and variety § Product life cycle 1 • 21 © APICS Confidential and Proprietary

Lead Time and Manufacturing Environments ETO delivery lead time Design Purchase Manufacture Assemble Ship MTO delivery lead time Inventory Manufacture Assemble Make-to-order Ship ATO delivery lead time Manufacture Inventory Assemble Ship MTS delivery lead time Manufacture Assemble Inventory Ship Source: Arnold et al. , Introduction to Materials Management, 7 th ed. Reprinted by Permission of Pearson Education 1 • 22 © APICS Confidential and Proprietary Engineer-toorder Assemble-toorder Make-to-stock

Volume and Variety Relationships High Product variety Engineer-to-order Mass customization Make-to-order Assemble-to-order Make-to-stock Low 1 • 23 © APICS Confidential and Proprietary Product volume High

Product Life Cycle Units sold Introduction 1 • 24 Time Growth © APICS Confidential and Proprietary Maturity Decline Phase-out

Product Life Cycle and Manufacturing Environments Units sold Introduction Time Growth ETO MTO ATO MTS Mass customization 1 • 25 © APICS Confidential and Proprietary Maturity Decline Phase-out

Choice of Processes and Layouts § Intermittent § Flow − repetitive/line − continuous § Project 1 • 26 © APICS Confidential and Proprietary

Intermittent Manufacturing Source: Arnold et al. , Introduction to Materials Management, 7 th ed. Reprinted by Permission of Pearson Education 1 • 27 © APICS Confidential and Proprietary

Intermittent Manufacturing Characteristics § Intermittent lot or batch production § Work moves only to required stations § Many different parts processed at workstations § General-purpose machinery § Relatively easy to change product or volume § Complex and expensive production and inventory control § High WIP inventory levels; long lead time 1 • 28 © APICS Confidential and Proprietary

Intermittent Manufacturing Layout § Intermittent manufacturing layout is called process layout. § It also is called functional or job shop layout. § Equipment and operations are grouped together by functional specialty. § There are similar types of skills and equipment in each department. § Volume is not high enough to justify assembly line. 1 • 29 © APICS Confidential and Proprietary

Flow Manufacturing § Workstations are in the sequence needed to make the product. § Work flows at a nearly constant rate. § There is little WIP inventory. 1 • 30 © APICS Confidential and Proprietary

Flow Manufacturing Characteristics § Layout is called product layout. § There are fixed routings and dedicated machinery. § The process is capital intensive. § There are two types of flow: repetitive (line) and continuous. § Repetitive produces discrete units, such as cell phones and automobiles. § Continuous produces non-discrete products, such as liquids. § There is a limited range of similar products. § High product volumes occur. 1 • 31 © APICS Confidential and Proprietary

Advantages of Product Layout § Little WIP inventory § Short throughput and manufacturing lead times § Lower unit cost 1 • 32 © APICS Confidential and Proprietary

Project Manufacturing § Used for large, complex projects § Project remains in one location for assembly § Product made at one site § Avoids cost of moving the product 1 • 33 © APICS Confidential and Proprietary

Problem 1. 1 Product Layout Versus Process Layout Product Capital cost Flexibility Annual setup cost Run cost WIP inventory Production and inventory control costs Lead time 1 • 34 © APICS Confidential and Proprietary Process

Problem 1. 1 Solution Product Layout Versus Process Layout Product Capital cost Flexibility Annual setup cost Run cost WIP inventory Production and inventory control costs Lead time 1 • 35 © APICS Confidential and Proprietary Process

Session 1 Introduction to Supply Chain Management The Manufacturing Supply Chain 1 • 36 © APICS Confidential and Proprietary

Supply Chain Management Definitions § supply chain—The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash § supply chain management—The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally ─APICS Dictionary 1 • 37 © APICS Confidential and Proprietary

Basic Supply Chain: External supply chain from a manufacturer’s perspective Dominant flow of goods and services Returns and reverse logistics Suppliers Manufacturer Distributors Retailers Consumers Dominant flow of demand design information Dominant flow of cash 1 • 38 © APICS Confidential and Proprietary

Conventional Internal Supply Chain View Raw materials Purchasing Production Distribution Customers Lowest purchase price Inventory buffers High utilization percent Long runs (minimal changeovers) Low unit costs Safety stocks 1 • 39 © APICS Confidential and Proprietary Full truckload quantities Best shipping rate Safety stocks

Cross-Functional Supply Chain View Supply chain processes Manage customer orders and reverse logistics Develop products and services Manage procurement Produce products Manage distribution Perform marketing and sales Key support processes: Manage finance Manage human resources þ The value chain consists of the value-adding processes that enable a company to take its products from conception to market. þ The internal supply chain is a subset of the value chain. þ Support processes are important but are not considered primary value chain processes. 1 • 40 © APICS Confidential and Proprietary

Conflicts in Conventional Supply Systems Marketing Operations Finance Reduce Increase profit and Increase revenue manufacturing cost cash flow, reduce and satisfy investment customers Conventional objective 1 4 7 2 5 8 3 6 9 Customer service Production efficiency Inventory investment 1 • 41 © APICS Confidential and Proprietary

Performance Measures Key performance indicators (KPI) Strategic Tactical Operational 1 • 42 © APICS Confidential and Proprietary

Balanced Scorecard § “Balanced” to show KPIs from the − − 1 • 43 customer perspective business process perspective financial perspective innovation and learning perspective. © APICS Confidential and Proprietary

Role of Materials Management Demand 1 • 44 © APICS Confidential and Proprietary Resource s

Session 1 Introduction to Supply Chain Management Manufacturing Planning and Control (MPC) 1 • 45 © APICS Confidential and Proprietary

Objectives of Manufacturing § The right products § Of the right quality § In the right quantities § At the right time § At the right cost 1 • 46 © APICS Confidential and Proprietary

Why Plan? § To satisfy customer demand ensure the availability of the following resources: − material − capacity Demand 1 • 47 © APICS Confidential and Proprietary Resources

A Good Planning and Control System What must we get and when? These are questions of priority and capacity. 1 • 48 © APICS Confidential and Proprietary

Manufacturing Planning and Control Priority planning Master scheduling Rough-cut capacity planning (RCCP) Material requirements planning (MRP) Capacity requirements planning (CRP) Execution Resource planning (RP) © APICS Confidential and Proprietary Input/output control Order sequencing Execution 1 • 49 Sales and operations planning Capacity planning MPC activities Strategic and business planning

Session 1 Introduction to Supply Chain Management From MRP to ERP 1 • 50 © APICS Confidential and Proprietary

Evolution from MRP to ERP MRP processor Closed-loop feedback Best practice processes Common database Sales and operations planning Total cross-functional software process integration 1 • 51 © APICS Confidential and Proprietary MRP closed loop MRP II ERP

Session 1 Introduction to Supply Chain Management The Impact of New Systems and Philosophies 1 • 52 © APICS Confidential and Proprietary

Impact of New Systems Lean TQM TOC Six sigma § § § Reduced lead times Reduced inventory levels Improved worker productivity Improved product quality Cost reductions Increased profitability 1 • 53 © APICS Confidential and Proprietary Lean six sigma

Session 1 Introduction to Supply Chain Management Wrap-Up and Homework 1 • 54 © APICS Confidential and Proprietary

Learning Objectives § Introduction to Manufacturing − Explain the significance of the UN Global Compact. − Describe the components of the manufacturing business model. − Describe the impact of four significant aspects of the business environment on manufacturing. § Manufacturing Environments and Process Choices − Explain five manufacturing environments and their determinants. − Explain the differences among the three process choices. § The Manufacturing Supply Chain − − Differentiate between internal and external supply chains. Differentiate between conventional and cross-functional supply chains. Explain common supply chain conflicts and how to resolve them. Explain the relationship between strategic, tactical, and operational performance measures. − Explain the role of materials management. 1 • 55 © APICS Confidential and Proprietary

Learning Objectives (cont. ) § Manufacturing Planning and Control − − Identify five objectives of manufacturing. Describe the concepts of priority and capacity. Present an overview of the MPC hierarchy. Describe the four steps in the evolution of MRP to ERP. § The Impact of New Systems and Philosophies − Present a high-level description of lean, TQM, six sigma, and TOC. 1 • 56 © APICS Confidential and Proprietary

Vocabulary Check § Objective: Reinforce terminology used in this session. § Complete the activity in class, individually or in pairs, or as homework. 1 • 57 © APICS Confidential and Proprietary

Vocabulary Check Solution 1. f 7. g 2. i 8. a 3. l 9. 4. k 10. c 5. d 11. e 6. h 12. b 1 • 58 j © APICS Confidential and Proprietary