Post on 22-Oct-2014
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Overview of Supply Chain
BasicsJames Elam, Manager,
3M Supply Chain Network Analysis
Rob Wehrman, Manager,3M Supply Chain Optimization &
Modeling Expertise Center
Why Just-in-time Won’t Work for Public Health
3Our Values and Goals
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Electro and Communications Business
Consumer andOffice Business
Display andGraphics Business
Health CareBusiness
Industrial and TransportationBusiness
Safety, Security and Protection Services Business
Six Market - Leading Businesses
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International Focus3M companies in more than 60 countriesSales in nearly 200 countriesConsulting with Ministries of Health outside the US on Pandemic Influenza Preparedness
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James Elam, Manager, 3M Supply Chain Network Analysis
Rob Wehrman, Manager, 3M Supply Chain Optimization & Modeling
Expertise Center
Speakers
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AgendaIntroductionBasics Concepts in Supply Chain and ManufacturingJust-in-Time Manufacturing ConceptsWarehouse and Transportation ConsiderationsConclusionsQuestions
General Supply Chain Processes
Demand Information Material Flow
Mate
rial F
low
Material Flow
Typical Supply Chain Network Model
Manufacturing
Information
Forecasted Demand and/or Orders
Plan
ning
Plan
ning
Plan
ning
Plan
ning
Plan
ning
DelayDelay Delay
DistributionSupplier Customer
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Types of Manufacturing Processes: Batch
Most prevalentPlanned quantity of one productMany different products made on same equipmentEconomic situation determines an optimal batch size Products are run in a logical sequence to optimize processLead time includes waiting in queue and processing time
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Types of Manufacturing Processes: Flow
Not as prevalentSingle product productionVery low variabilityEquipment usually runs at a steady paceLead time is short as product is available all the timeCapacity is expensive and hard to increase
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Manufacturing CapacityUsually fixed at a rate determined by equipmentEconomics drive minimum capacity to meet demandSome excess capacity accommodates variabilityDemand can exceed capacityAdding capacity is generally a long lead time
Hypothetical Demand of an Item
0
50
100
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200
250
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Time Periods
Dem
and
Qua
ntity
Capacity Demand Avg. Demand
Demand can exceed capacity
Capacity
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Manufacturing Planning Processes: Make-to-Stock
Demand lead time is shorter than supply lead timeOrders are filled from inventoryUse forecast to produce inventory before demand occursIt is important to forecast accuratelyReplenishment quantities are based on an economical size
Time
Inve
ntor
y
Safety StockCycle Stock Cycle Stock Cycle Stock
Consumption Replenishment
Reorder
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Manufacturing Planning Processes: Make-to-Order
Wait for actual orders before productionDemand lead time is longer than supply lead timeUsually used for low demand items that are hard to forecast
Hypothetical Demand of an Item
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50
100
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1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Time Periods
Dem
and
Qua
ntity
Capacity Demand Avg. Demand
Lead time allows making product when capacity is available
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Importance of Demand ForecastForecast is an estimate of anticipated demandAll forecasts have errorForecast error is the difference in the forecast and actualThe goal is to have minimum forecast error such that the planning is acceptable
Time
Demand
Actual DemandForecast
Low forecastError:
System is stable
High forecastError:
System is chaotic
Error
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History of Just-in-Time Manufacturing
1799 – Eli Whitney, interchangeable parts1910 – Henry Ford, first to implement Just in Time manufacturing
“We have found in buying materials that it is not worth while to buy for other than immediate needs,” Henry Ford.Designed a process that eliminated waste and reduced variability
1950 – Toyota introduced the “Toyota Production System”Replication of the Ford systemIncluded new concepts of Total Quality Management, Small Batch Production and Cellular Manufacturing
1990 – James Womack, The Machine that Changed the World,History of automobile manufacturing in Japan, US and Europe“Lean Manufacturing” is introduced as a new phrase for JIT
Today – It’s still all about eliminating waste in the total business process
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“Just-in-Time” Concept
Definition: Producing exactly what is needed and transferring it to where it is needed precisely when required.Characteristics:
Little or no inventoryMostly make-to-order with short lead timesGreatly reduced variability from all sourcesEliminate “special cause” variabilitySupply chain synchronizes to a pacing processMany tightly scheduled eventsExcess capacity is a form of waste that is minimized
JIT Systems are deliberately designedIt can take years to establishThey don’t occur naturally or by chance
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Hypothetical Demand of an Item
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50
100
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1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Time Periods
Dem
and
Qua
ntity
Capacity Normal Demand Avg. Demand
Example – Normal Demand PatternHypothetical Demand of an Item
0
50
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200
250
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Time Periods
Dem
and
Qua
ntity
Capacity Normal Demand
Avg. Demand JIT Demand
Hypothetical Demand of an Item
0
50
100
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1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Time Periods
Dem
and
Qua
ntity
Capacity Normal DemandAvg. Demand JIT DemandUnplanned Demand
Special Cause Demand that JIT will
not accommodate
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JIT Shortcomings for Public Health System
Demand is characterized by large unexpected eventsEnd user lead time requirements are extremely shortThe steady state condition of the supply chain will not accommodate the high demand spikesNot practical to have enough capacity to accommodate high demand spikesPublic health emergencies can’t be scheduled in advance
For public health emergencies… you should have inventory on hand
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Distributor
Material flow and Inventory
EndUse
Manufacturer
Public Health
Short lead time with inventory
Long lead time without inventory
Limited storage capacity
Inventory in many locations
Limited storage capacity
Limited inventoryPlanned based demand
Limited capacity, flow rate is limited
Longer lead timePlanned with forecast
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Distributor
Material flow and Inventory
EndUse
Hypothetical Demand of an Item
0
50
100
150
200
250
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Time Periods
Dem
and
Qua
ntity
Capacity Normal Demand Avg. Demand
Under normal conditions the system is in balance
Manufacturer
Public Health
Short lead time with inventory
Long lead time without inventory
Limited storage capacity
Inventory in many locations
Limited storage capacity
Limited inventoryPlanned based demand
Limited capacity, flow rate is limited
Longer lead timePlanned with forecast
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Material flow and Inventory
EndUse
Hypothetical Demand of an Item
0
50
100
150
200
250
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Time Periods
Dem
and
Qua
ntity
Capacity Normal DemandAvg. Demand Unplanned DemandUnplanned Avg. Demand
When demand exceeds supply inventory is consumed
Manufacturer
Distributor
Public Health
Short lead time with inventory
Long lead time without inventory
Limited storage capacity
Inventory in many locations
Limited storage capacity
Limited inventoryPlanned based demand
Limited capacity, flow rate is limited
Longer lead timePlanned with forecast
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Material flow and Inventory
EndUse
Hypothetical Demand of an Item
0
50
100
150
200
250
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Time Periods
Dem
and
Qua
ntity
Capacity Normal DemandAvg. Demand Unplanned DemandUnplanned Avg. Demand
If demand exceeds supply long enough inventory is depleted
Manufacturer
Distributor
Public Health
Short lead time with inventory
Long lead time without inventory
Limited storage capacity
Inventory in many locations
Limited storage capacity
Limited inventoryPlanned based demand
Limited capacity, flow rate is limited
Longer lead timePlanned with forecast
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Material flow and Inventory
EndUse
Hypothetical Demand of an Item
0
50
100
150
200
250
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Time Periods
Dem
and
Qua
ntity
Capacity Normal DemandAvg. Demand Unplanned DemandUnplanned Avg. Demand
After unplanned demand system can be put back in balance
Manufacturer
Distributor
Public Health
Short lead time with inventory
Long lead time without inventory
Limited storage capacity
Inventory in many locations
Limited storage capacity
Limited inventoryPlanned based demand
Limited capacity, flow rate is limited
Longer lead timePlanned with forecast
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Hypothetical Demand of an Item
0
50
100
150
200
250
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Time Periods
Dem
and
Qua
ntity
Capacity Normal Demand Avg. Demand
Planning for High Demand
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Hypothetical Demand of an Item
0
50
100
150
200
250
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Time Periods
Dem
and
Qua
ntity
Capacity Normal DemandAvg. Demand Unplanned DemandUnplanned Avg. Demand
Planning for High Demand
Forecast event
Capacity added in response over time
Create stock
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Hypothetical Demand of an Item
0
50
100
150
200
250
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Time Periods
Dem
and
Qua
ntity
Capacity Normal DemandAvg. Demand Unplanned DemandUnplanned Avg. Demand
Planning for High Demand
Forecast event
Capacity added in response over time
Create stock early
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Summary
Basics Concepts in Supply Chain and ManufacturingMost manufacturing is a batch processMost finished goods are inventoried in a Make-to-Stock system (Forecast of demand is important)Manufacturing has capacity limits
Just-in-Time Manufacturing ConceptsDesigned to be very efficient under normal conditionsNot designed to handle large unexpected demandMust be deliberately designedExecuted with rigorous planning
For public health emergencies… you should have Inventory on hand
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Warehousing and Transportation Considerations
Warehousing / storing material is the common method of dealing with variability in the supply chainWhere is the best place to position material prior to the publichealth emergency?Do you possess the capabilities to store some / all of what you need in your POD? What other logistics issues are important for you to consider asyou make your decision?
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Risk-Pooling
Risk pooling is the concept that demand variability reduces as we aggregate demand
Across CustomersAcross ProductsAcross Time Periods
Customer 1
Customer 2
Customer 3
Expected Value = 100Std Dev = 30
Expected Value = 100Std Dev = 30
Expected Value = 100Std Dev = 30
Combined Distribution
Expected Value = 300Std Dev = 51.9
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Storage and Planning OptionsAdvantages•Risk Pooling•Public Health manages •Shared space Disadvantages•Longer lead times •Transportation concerns
Advantages•Shorter lead time•Fewer transport concerns•High level of local control Disadvantages •Higher resource requirement •Logistics expertise needed•Space/storage required •No risk pooling
Advantages •Shorter lead time•Fewer transport concerns•Existing expertise Disadvantages •Space/storage required•Less Control •No risk pooling
Advantages •Economies of scale •Minimal local overhead •Pay based on risk •Existing expertiseDisadvantages•Longer lead times•Transportation concerns
Local
Central
Public Health Others
Management of Process
Physical Storage
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Local Storage – Self Managed Inventory
Inventory positioned at and managed by POD Local control of procurement and inventory
POD responsible for and directly affected by degree of forecast errorRequires local ongoing planning and management of resources
People – sufficiently trained Facilities - sufficient space for storage, special requirements, e.g. hazardous, temp. control, clean area, aerosol storage, security.Material handling – racking, hand trucks or power equipmentSystems – procurement, inventory tracking/control/recordsMust manage inventory including expiration dates, lot/serial control
Product onsite during public health emergencyFewer transportation concerns Fewer product lead time concerns
POD
POD
Carries Inventory &
Manages Process
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Local Storage – 3rd Party Managed Inventory
Inventory positioned at POD but managed by 3rd Party Facilities - sufficient space for storage, special requirements, e.g. hazardous, temp. control, clean area, aerosol storage & security.Outsource management of inventory including expiration dates, lot/serial control
Leverage existing expertise and systems Product onsite during public health emergency
Fewer transportation concerns Fewer product lead time concerns
POD3rd Party
POD
Carries Inventory
Manages Process
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Central Storage – Self Managed Inventory
Inventory positioned at central warehouse and managed by public health
Simplifies managing expiration dates on inventoried itemsInventory risk pooling Economies of scale - Requires fewer people or equipment resources
Public Health must manage procurement process Material must be transported to POD at time of public health emergency
Transportation infrastructure issues during public health emergencyTransit times (lead times) must be considered
PODCentral
Warehouse
POD
Carries Inventory &
Manages Process
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Central Storage – 3rd Party Managed Inventory
Inventory positioned at and managed by 3rd PartyNo long term physical storage concerns – less space & overheadReduces issues with managing expiration dates on inventoried itemsInventory risk pooling Economies of scale Supplier managed replenishment
Minimal Public Health resource requirementsPublic health staff can focus on public health issuesLeverage existing logistics expertise & systems
Material must be transported to POD at time of public health emergency
Transportation infrastructure issues during public health emergencyTransit times (lead times) must be considered
POD3rd Party
Warehouse
POD
Carries Inventory& Manages
Process
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What Do I Need to Know if I Plan to Locally Store Material?
Minimum requirements for local physical storage and material handling
1. Product Information2. Physical Space & Material Handling Equipment 3. Operating Information System & Process 4. Personnel
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Product InformationWhy is this important?Product database is basis for material movement and storage requirements
ManufacturerSKU# (Stock Keeping Unit)Product specifications - e.g. description, tape sizeSpace requirements for this SKU
Carton dimensions and weight How will this item be received?
Pallets, loose cartons, broken caseHow much will we order?
Estimate average on hand Special storage requirements (Follow manufacturers instructions) –hazardous, medical clean, cool or cold, aerosol, corrosive etc.
Resource type per NIMS guidelinesMy supplier informationMinimum order quantity? Billing vs. shipping units Product lead time
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Physical Space & Material Handling
Sufficient secure space for storage and inbound / outbound handling areaSlotting - Sufficient space to store each SKU
How much of each product will I have to store?How much space does it require?Special storage requirements, e.g. cool or cold room, hazardous,clean room, aerosolSufficient Shelving or racks for each item (if required)
Can SKU be stored on the floor?Material handling equipment
What will be received and how will we handle it?Material totesPallet handling and movement
Hand Jacks or fork trucks required?High storage requires reach equipment
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Operating Information System & Process
What system will I utilize to manage supply chain? Logistics plan What level of sophistication required?Spreadsheets vs. Warehouse Management or Inventory Systems
Procurement How much do I need of a product?When do I need it? What are lead times?How do I procure product?Will I need to reorder product?
Reorder point management – reorder cards or system? Receive
Physically receive materialAccount for material – record transactions in my system, including run lot/serial/number Identify damage or discrepancies Prepare for storage – secure or prepare for storage
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Operating Information System & Process
StoreTransport to storage location- bin, shelf, rack or floor space Account for location on system – where did I put it, when, how much & run/lot/serial? Ongoing maintenance & recordkeeping
Manage run/lot/serial expiration Maintain space – cleanliness/order
Security Pick material
How do I manage this process during emergency public health emergency?Pick list?Record run/lot/serial numbers pickedUpdate inventory records
Return & Recovery Disposition damage Disposition expired materialUpdate inventory record including run/lot/serialRe-supply – trigger replacement order
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Personnel
How many people do I need to manage receipt, storage and tracking of product?
Ongoing – how much and what type of work is required to maintain inventory and supply chain?Public health emergency-
Will I need to create kits or will items be used as-is?How many & what type of resources (people & equipment) will I need during the emergency and how will I get them? Small versus large/complex operationSelf dispensing?
What skill sets will they have to have?Basic inventory management?Material Handling?Material Special Requirements?
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Conclusions
Work with existing defined resources (i.e. NIMS)Type of resourcesMaking plans to mobilize, de-mobilize, etc
Talk with your existing distributionCan’t make a plan until you know your demandDon’t wait for emergency to buy materials
JIT will not work doing a public health emergency
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Q & A