Operations 1

Process Analysis Terms

Process: Is any part of an organization that takes inputs and transforms them into outputs

Cycle Time: Is the average successive time between completions of successive units

Utilization: Is the ratio of the time that a resource is actually activated relative to the time that it is available for use

Process Flowcharting Defined Process flowcharting is the use of a

diagram to present the major elements of a process

The basic elements can include tasks or operations, flows of materials or customers, decision points, and storage areas or queues

It is an ideal methodology by which to begin analyzing a process

Other Process Terminology Blocking

Occurs when the activities in a stage must stop because there is no place to deposit the item just completed

If there is no room for an employee to place a unit of work down, the employee will hold on to it not able to continue working on the next unit

Starving Occurs when the activities in a stage must stop

because there is no work If an employee is waiting at a work station and no

work is coming to the employee to process, the employee will remain idle until the next unit of work comes

Other Process Terminology (Continued)

Bottleneck Occurs when the limited capacity of a

process causes work to pile up or become unevenly distributed in the flow of a process

If an employee works too slow in a multi-stage process, work will begin to pile up in front of that employee. In this is case the employee represents the limited capacity causing the bottleneck.

Pacing Refers to the fixed timing of the movement of

items through the process

Process Performance Metrics

Operation time = Setup time + Run time Cycle time = Average time between completion of

successive units Throughput time = Average time for a unit to move

through the system ie entire process Lead time = The total time it takes a customer to receive

an order (includes time to process the order, throughput time and delivery time)

Process Velocity = Throughput time (Throughput ratio) Value-added time

COMPONENTS OF LEAD TIME

Total Flow time spent in the system comprises: Processing Time Setup Time Move Time Wait for Batch Time Wait for Match Time (for assemblies/ kits) Queue Time

Allowed Lead Time = Average Flow Time + Safety Time

Process Performance Metrics (Continued)

Throughput rate = 1 . Cycle time

Efficiency = Actual output Standard Output

Productivity = Output Input

Utilization = Time Activated Time Available

A Few 1-Dimensional Frameworks

By Nature of Product: Discrete ------- Discrete ------ Commodity Heterogeneous Homogeneous

By Job Processing Requirements: Job Shop ------ Flow Shop

By Layout Type: Process/ ------ Product Layout Functional

.. A Few 1-Dimensional Frameworks

By Process Technology Type: Project ------- Intermittent ------ Continuous By Logistics Positioning To Order -------------- To Stock

ETO MTO ATO MTS

Design Manufacture Assembly Delivery

IV. Continuous

Flow

III. Connected Flow (Line)

II. Disconnected Flow (Batch)

I. Jumbled Flow (Job Shop)

Low Volume, One of a

Kind

Multiple Products,

Low Volume

Few Major

Products, Higher Volume

High Volume,

High Standard-

ization Heavy/

Customized Machinery

Low-customization Light/ Medium

Machines

Assembly of Autos, PCs,

TVs etc.

Sugar Refinery

Unit Cost (High) Flexibility (High)

Dependability (Low)

Dependability (High) Flexibility (Low) Unit Cost (Low)

The Product-Process Matrix (Hayes & Wheelwright)

Inefficient Region

Wasteful Region

Effectiveness Measures:

From Chase, Aquilano & Jacobs Ch. 5

2-D Framework: Volume-Specificity

Volume

Customer Specificity

Design for Customer

Mass Production

Craft

Concurrent

Response

2-D Framework: Volume-Variety (in Discrete Manufacturing)

Volume

Variety

NC Job Shop

Flow/ Transfer Lines

GT/CM

FMS

FLOW LINES IN MASS PRODUCTION HIERARCHY

Mass Production

Quantity Production

Flow Production

Flow Process

Discrete Item Flow Line

Assembly Flow Line

Transfer Line

FMS Defined

An integrated computer-controlled complex of Numerically Controlled machine tools, with Automated Tool Management, and Automated Material Handling, that can simultaneously process a Medium-sized volume of a Moderate variety of parts

Group Technology A management approach of recognizing and

exploiting similarities, to break down a complex task and obtain greater productivity in design and manufacturing, by:

Efficiently storing/ retrieving information about recurring situations and problems

Standardizing similar tasks Performing like activities together

Cellular Manufacturing The organisation of manufacturing tasks into self-

contained units or cells, comprising: Different kinds of manufacturing processes, Arranged in physical proximity, To produce a limited range or family of items Attempts to combine flexibility of job shop with efficiency

of flow lines

The Volume Variety Map

Goal concepts

Systems view Local optimization is not the best Bottleneck the real target Loss at bottleneck is loss for system Statistical fluctuations (CV) Use buffer on both sides of bottleneck

What is SCM

The process of planning, implementing and controlling the efficient and effective flow of raw material, work in process and finished goods and related information from the point of source to the point of consumption or the purpose of conforming to customer requirements.

- Council of Logistics Management

Supply Chain Management

S M W D R

Product / Service

Funds / Money

Information

Topics Inventory Management

P & Q Systems EOQ Risk Pooling Square Root Law RFID / Barcodes Bull Whip Effect Relationship with Communication Technology

Strategic Alliances - VMI Logistics

Dist Models / 3PL

Inventory Management

COST ASSOCIATED WITH INVENTORY

Holding / Carrying Cost Ordering Cost Set-up cost Shortage Cost

Demand

Certainty Risk Uncertainty

Ordering

When to Order How Much to Order

P & Q SYSTEM

We have two general type of inventory system :

FixedOrder Quantity model ( Q- System ) FixedTime Period Model ( P-System )

Q System Here, order quantity is fixed which is equal

to EOQ. Whenever inventory level falls to a predetermined level, reorder point , order is placed .

Reorder point , R= Average demand over lead time +Safety Stock (S.S)

Order quantity , q = Economic Order quantity

Average Inventory = [ EOQ/2+safety stock ]

P System Here, review period is fixed and order size

varies . Order size is calculated as : Replenishment level , R = average demand over lead

time & review period + safety stock .

Ordered Quantity = Replenishment level Inventory on hand - Inventory on order.

Average Inventory = Average Consumption during review period / 2 + S.S

A3

ORDERING POINTS

1 2 3 4 5 6 7 8 9 10 11 12 13 Q SYSTEM FIXED ORDER QUANTITY SYSTEM ( ORDER QUANTITY = 500 )

1000

800

600

400

200 (100)

(400) A1 A2 ROP Level

SS Level

P SYSTEM- FIXED PERIOD REVIEW SYSTEM

L 2 4 6 L 8 10 12 14 R =6 R = 6 MONTHS

1000

800

600

400

200 SAFETY STOCK

1100 ROP = 1100

Within the suggested classification, regularity of orders has been considered to fix the review policy, replenishment frequency, review period & lead times

ABC HILRegular Irregular Sporadic Regular Irregular Sporadic Regular Irregular Sporadic

HILHILHILHIL

C2

B

C1

Classification - ReviewAS/FES FMS

A

F M S

Manual Review System Review

Inventory Review Mechanism

ITEMS ARE FED FROM THIS

WHEN BIN IS EMPTY , IT IS SIGNAL TO PLACE ORDER

THIS CONTAINS ITEMS = REORDER LEVEL, R

THIS IS USED WHEN 1ST BIN IS EXHAUSTED THIS SYSTEM OBVIATES CONTINUOUS MONITORING

USEFUL IN MANUAL SYSTEM

1st BIN

2nd BIN

Economic Order Quantity (EOQ)

Occurs when Ordering Cost equals Holding Cost

Assumptions Single Product Stable Demand Zero Lead Time

Risk Pooling

DEMAND VARIABILITY IS REDUCED IF IT IS AGGREGATED ACROSS LOCATIONS. HIGH DEMAND OF ONE MAY BE OFF-SET BY LOW DEMAND OF ANOTHER. THIS LEADS TO REDUCED SAFETY STOCK AND HENCE AVGE INVENTORY.

Square Root Law

Amount of inventory is approximately proportional to the square root of the number of warehouses

RFIDs and BARCODEs

BULL WHIP EFFECT

While the consumers consume the product at a steady state with minor

fluctuations, the demand order variability in the supply chains are amplified as they

move up the chain.

DEMAND VARIABILITY

DEMAND VARIABILITY

BULLWHIP EFFECT IN SUPPLY CHAIN

Variability in Demand

02468

10

1 2 3 4 5 6 7 8

Time

Ord

er

Qu

an

tity

Consumer Sales

Retailers order toWholesaler

Wholesalers orderto Manufacturer

Manufacturer'sorder to Supplier

Demand forecast updating Order batching Price fluctuation Rationing and shortage gaming

CAUSES OF BULL WHIP EFFECT

Communication Technology

MAJOR ERP PLAYERS

SAP : MARKET LEADER. DEVELOPING ANALYTICAL SOFTWARE FOR SUPPLY CHAIN PLANNNG

ORACLE: INITIALLY ADDED FINANCIAL APPLICATINS TO ITS

DATA BASE PROGRAMS NOW A LARGE ERP PROVIDER PEOPLE SOFT: SAP STARTED WITH MANUFACTURING

APPLICAIONS AND ORACLE WITH FINANCE, PEOPLESOFT STARTED WITH HUMAN RESOURCES APPLICATIONS.

BAAN: CROSS FUNCTIONAL INTEGTRATED SYSTEMS WITH

ENTIREPRISE WIDE BUSINESS VIEW. FOCUS ON MIDSIZE MANUFACTURING COMPANIES.

Strategic Alliances

Supplier Selection

ADVANTAGE OF SINGLE VERSUS MULTIPLE SOURCES

MULTIPLE SINGLE Assurance of supply in case of trouble Lever to guard against price increase Some suppliers cant handle all the work Ability to call on unused capacity of several suppliers

Easier to manage coordination and relationship Leverage over supplier is greater with volume purchase . Vendor feels fully responsible / total obligation Supplier more inclined to do special things . Lesser tooling cost Feasible to introduce JIT

Factor Weight (%)

Measurement

Performance Of Vendor

Rating

Quality Delivery

Price Service

40 30 20 10

(No of sample accepted / Total samples )* 100 (On time Delivery/Total Delivery )*100 (Standard price / customer price) * 100 Good : fair : poor ::100:70:40

96 % 97% 92% 70%

38.4(0.4*96) 29.1(30*0.97) 18.4 (0.2*92) 7 (0.1 * 70)

WEIGHTED POINT RATING SYSTEM OF VENDOR EVALUATION

THE SEVEN Cs OF EFFECTIVE SUPPLIER EVALUATION Competence : This includes - Technical skills of staff at all levels - Ability to design and deliver product / service Capacity physical , human , financial resource Commitment in terms of quality , cost and service Control system : resource control systems, inventory, costs, budgets, people and

information. Cash resource and financial stability Cost total cost of acquisition Consistency

STRATEGIC ALLIANCES V M I

COSTCO RETAILER -155 STORES, $ 27 b KIMBERLY CLARK DIAPER MANUFACTUERER OBJECTIVE

CUTTING COSTS ACROSS THE CHAIN

STOCK REPLENISHMENT RESPONSIBILITY- SUPPLIER HOW MUCH TO SHIP TO WHICH STORE WHEN COST OF W/ HOUSING EXCESS STOCK LIMITED STORE SPACE AVAILABLE

SUPPLIER PAYS FOR EVERYTHING INVOLVED IN

MANAGING COTSCO,S INVENTORY EXCEPT ACTUAL SHELF-STOCKS

STRATEGY

TECHNOLOGY ENABLED SHARING OF POS DATA -RECORDED SALE COMMUNICATION WITH LOADING POINTS/ TRUCKING AGENT/

VEHICLES ON THE MOVE. TO MEET DEMAND FLUCTUATION OPERATIONAL EXIGENCIES -LEVERGE LOGSTCS SUPERVISE STORES INVENTORY LEADTIME, SAFETY STOCK -INV.CARRYNG COST

PRODUCT SKU RATIONALISATION

eg: UNISEX PRODUCT - RISK POOLING ENHANCED CUSTOMER SERVICE SCOUTING STORES, PACKGNG DESIGN, RANDOM STOCK VERIFICATION, INCOMPLETE IVERY, WRONG DELIVERY.

ORDER-CUSTOMER-CONSIGNMENT LINK UP. -CUSTOMER SERVICE

KIMBERLY CLARK EXTENDED SERVICES TO ALL STORES AND ALL REGIONS

- ECONOMY OF SCALE

THE COCEPT EXTENDED TO SUPPLIERS SUPPLIER VELCRO FABSHIPMENTS BASED ON DEMAND DATA SHARING

BASED ON STORES SALE. - RM PLANNING

STRATEGIC ALLIANCE FRAMEWORK

ADDING VALUE TO PRODUCT COMPLEMENTARY PRODUCTS IMPROVED DISTRIBUTION TIME TO MARKET TIME TO REPAIR AND SERVICES IMPROVED MARKET ACCESS COOPERATE TO ADDRESS NEED OF MAJOR

RETAILERS ACCESS TO NEW MARKET CHANNELS

JOINT ACTION TO REDUCE CYCLE TIME SYSTEM COSTS AND IMPROVE OPERATIONS COMPANIES WITH COMPLEMENTARY

SEASONAL PRODUCT TO OPTIMISE WARE HOUSE AND TRANSPORT ASSETS.

ADDING TECHNOLOGICAL STRENGTHS PARTNERSHIP WITH MATCHING STRENGTHS TIMKEN,CUMMINS

LOGISTICS

OUTBOUND DISTRIBUTION STRATEGIES

DIRECT SHIPMENT WAREHOUSING CROSS DOCKING TRANS-SHIPMENT

DIRECT SHIPMENT: ELIMINATES EXPENSES OF OPERATING - DISTRIBUTION CENTER - REDUCED LEAD TIMES RISK POOLING EFFECT NEGATED AS THERE IS - NO WAREHOUSE

INCREASED MAFR./DISTRB COST DUE TO FREQUENT TRIPS TO MORE LOCATIONS.

DIRECT SHIPMENT AS PREFERRED STRATEGY

SUCCESS STORY: J C PENNEY sells merchandise through a thousand stores and millions of catalogues. It deals in 200,000 items sourcing from more than 20,000 suppliers. Each store retains total accountability for sales,inventory & profit and is responsible for sales forecast and release of orders.

Orders are communicated to buyers who coordinate shipment with distribution personnel to ensure quick response and a tracking system is used to monitor flow of materials.

IN MOST CASES PRODUCTS ARE SHIPPED DIRECT TO PENNEYS STORES.

CROSS DOCKING IN 1979 KMART WAS ONE OF THE LEADING COMPANIES IN THE RETAIL INDISTRY WITH 2000 STORES. WAL- MART WAS A SMALL NICHE RETAILER WITH 200 STORES. IN TEN YEARS WAL-MART BECAME THE LARGEST AND THE HIGHEST PROFIT RETAILER IN THE WORLD. HOW DID THEY DO IT?

STRATEGY: INVENTORY REPLENISHMENT POLICY AS THE CENTER PIECE OF STRATEGY

KEY SUCCESS FACTOR: INNOVATIVE LOGISTICS TECHNIQUE - CROSS DOCKING

CROSS DOCKING

In CROSS DOCKING a warehouse functions as inventory coordinator point.No inventory is maintained except waiting for a few hours. Goods arrive at the warehouse and are transferred to vehicles serving retailers as rapidly as possible. The system reduces Inventory Costs and Lead Time.

WALL-MART delivers 85% of consignments through CROSS DOCKING. Shares POS data with its vendors through a private satellite communicating system. Has a dedicated fleet of 2000 trucks. Stocks are replenished twice a week on average. Has achieved Economics Of Scale and reduced the need for safety stocks and cost for sale.

TRANS SHIPMENT

SHIPMENT OF ITEMS BETWEEN DIFFERENT FACILITIES AT THE SAME LEVEL IN THE SUPPLY CHAIN TO MEET SOME EMERGENT DEMAND.

PRACTICED MOSTLY AT THE RETAIL LEVEL. EACH RETAILER MUST HAVE ACCESS TO THE INFORMATION OF INVENTORY HELD BY OTHERS.

IF ALL THE RETAIL OUTLETS HAVE THE SAME OWNER(?) , INFORMATION SYSTEM IS STRONGLY INTEGRATED AND PHYSICAL TRANS SHIPMENT COST REASONABLE.

TARNS SHIPMENT COMBINES THE ADVANTAGE OF RISK POOLING AS WELL AS DECENTRALISED OPERATION.

STRATEGIC ISSUES IN 3 PL

COMPARE WITH COST OF DOING IT INTERNALLY. ACTIVITY BASED COSTING HELPS IN TRACING OVERHEADS AND DIRECT COST TO THE LEVEL OF SPECIFIC PRODUCTS AND SERVICES.

CUSTOMER ORIENTATION OF 3PL THE VALUE OF A THIRD PARTY PROVIDER IS DIRECTLY RELATED TO ITS UNDERSTANDING OF THE NEEDS OF THE HIRING FIRM AND TO ADAPT ITS SERVICES TO SUIT THE SPECIAL NEEDS OF THE FIRM. COST CONSIDERATIONS COME ONLY AFTERWARDS.

SPECIALIZATION OF THE 3PL THE CORE STRENGTH OF THE PROVIDER IS THE MAIN CONSIDERATION. -SMALL PACKAGE EXPERTISE -TRUSTED CORE CARRIER -LTL CARRIER -MULTI MODAL

3 PL CONT.

ASSET OWNING VERSUS NON-ASSET-OWNING 3 PL COMPARATIVE ADVANTAGES IN RESPECT OF

SIZE RESOURCES EFFECIENCY OF DECISION MAKING FLEXIBILITY OVERHEAD COSTS CUSTOMER BASE SCALE OF OPERATION SPECIALISATION INDUSTRY EXPERTISE

MOTIVATION FOR 3 PL

SAVINGS ON OPERATING COSTS LIBERATING VAST AMOUNT OF CAPITAL DRAMATIC SERVICE IMPROVEMENT OBVIATE IR HASASSLES FREEDOM TO CONCENTRATE ON AREAS OF CORE

STRENGTH

IN-HOUSE SPECIALIST 3 PL

GENERAL 3rd PARTY CONTRACTOR

N/A

CR I T I C A L I T Y

LOW HIGH

HIGH

COMPLEXITY

COMPLEXITY-CRITICALITY MATRIX

REASONS FOR CONTRACTING OUT DISTRIBUTION

Quality

What is quality? Meeting the customer specifications

It is the customer's perception about the degree

to which the product or service meets his/her expectations.

Therefore, quality is defined by customer needs and expectation.

Customers Smile

Quality Specifications

Design quality: Inherent value of the product in the marketplace

Dimensions include: Performance, Features, Reliability, Durability, Serviceability, Response, Aesthetics, and Reputation.

Conformance quality: Degree to which the product or service design specifications are met

Costs of Quality

External Failure Costs

Appraisal Costs

Prevention Costs

Internal Failure Costs

Costs of Quality

Six Sigma Quality

A philosophy and set of methods companies use to eliminate defects in their products and processes

Seeks to reduce variation in the processes that lead to product defects

The name, six sigma refers to the variation that exists within plus or minus three standard deviations of the process outputs

Six Sigma Quality (Continued) Six Sigma allows managers to readily

describe process performance using a common metric: Defects Per Million Opportunities (DPMO)

1,000,000 x

units of No. x unit

per error for iesopportunit ofNumber

defects ofNumber

=DPMO

Six Sigma Quality: DMAIC Cycle

Define, Measure, Analyze, Improve, and Control (DMAIC)

Developed by General Electric as a means of focusing effort on quality using a methodological approach

Overall focus of the methodology is to understand and achieve what the customer wants

DMAIC consists of five steps.

Six Sigma Quality: DMAIC Cycle (Continued)

1. Define (D)

2. Measure (M)

3. Analyze (A)

4. Improve (I)

5. Control (C)

Customers and their priorities

Process and its performance

Causes of defects

Remove causes of defects

Maintain quality

Other Six Sigma Tools Opportunity Flow Diagram used to

graphically show those activities that add value from those that are performed (and maybe could be reduced or removed) that do not add value to the finished product

Failure Mode and Effect Analysis (DMEA) is a structured approach to identify, estimate, prioritize, and evaluate risk of possible failures at each stage in the process

Design of Experiments (DOE) a statistical test to determine cause-and-effect relationships between process variables and output

TQM: PDCA

ISO 9000

Series of standards agreed upon by the International Organization for Standardization (ISO)

Adopted in 1987

More than 100 countries

A prerequisite for global competition?

ISO 9000 directs you to "document what you do and then do as you documented"

Kaizen

to take it apart and put back together in a better way

The goals of kaizen include the elimination of waste ("activities that add cost but do not add value"), production load leveling of amount and types, standardized work, paced moving lines, right-sized equipment,

Quality Gurus

Deming Juran Crosby

Exhibit 7.1 (Chase Jacobs Aquilano book)

Sources

Prof RKS notes Chase Aquilano Jacobs SCM notes OM2 notes Matman Notes

\\192.168.1.199/profiles../oig

Thank You

Operations 1Process Analysis TermsProcess FlowchartingDefined Other Process TerminologyOther Process Terminology (Continued)Process Performance MetricsCOMPONENTS OF LEAD TIMEProcess Performance Metrics (Continued)A Few 1-Dimensional Frameworks .. A Few 1-Dimensional FrameworksSlide Number 112-D Framework: Volume-Specificity2-D Framework: Volume-Variety (in Discrete Manufacturing)FLOW LINES IN MASS PRODUCTION HIERARCHYFMS DefinedGroup TechnologyCellular ManufacturingThe Volume Variety MapGoal conceptsSlide Number 20What is SCMSupply Chain ManagementTopicsInventory ManagementDemandOrderingP & Q SYSTEMQ SystemP SystemSlide Number 30Slide Number 31Slide Number 32Slide Number 33Economic Order Quantity (EOQ)Risk PoolingSquare Root LawRFIDs and BARCODEsBULL WHIP EFFECTDEMAND VARIABILITYDEMAND VARIABILITYBULLWHIP EFFECT IN SUPPLY CHAINSlide Number 42Communication TechnologyMAJOR ERP PLAYERSStrategic AlliancesSupplier SelectionSlide Number 47Slide Number 48STRATEGIC ALLIANCESV M ISlide Number 50STRATEGYSlide Number 52Slide Number 53STRATEGIC ALLIANCE FRAMEWORKSlide Number 55LOGISTICSOUTBOUND DISTRIBUTION STRATEGIES DIRECT SHIPMENT AS PREFERRED STRATEGYCROSS DOCKINGIN 1979 KMART WAS ONE OF THE LEADING COMPANIES IN THE RETAIL INDISTRY WITH 2000 STORES. WAL- MART WAS A SMALL NICHE RETAILER WITH 200 STORES. IN TEN YEARS WAL-MART BECAME THE LARGEST AND THE HIGHEST PROFIT RETAILER IN THE WORLD.HOW DID THEY DO IT?Slide Number 60CROSS DOCKINGTRANS SHIPMENTSTRATEGIC ISSUES IN 3 PL3 PL CONT.MOTIVATION FOR 3 PLSlide Number 66Slide Number 67QualityWhat is quality?Quality SpecificationsCosts of Quality Six Sigma Quality Six Sigma Quality (Continued)Six Sigma Quality: DMAIC CycleSix Sigma Quality: DMAIC Cycle (Continued) Other Six Sigma ToolsTQM: PDCAISO 9000KaizenSlide Number 80Quality GurusSourcesThank You