Operations and Supply Chain Management, Chapter 1 &2

1. What is Operations and Supply Chain Management?

What is Operations and Supply Chain Management?

Operations and Supply Chain Management (OSCM) is the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services. OCSM is concerned with the management of the entire system that produces a product or delivers a service.

What are supply networks?

For every product/service a supply network can be made. Think of a supply network as a pipeline through which material and information flow.

Success in today’s global markets requires a business strategy that matches the preferences of customers with the realities imposed by complex supply networks.

Operations

Operations refers to manufacturing and service processes that are used to transform the resources employed by a firm into products desired by customers.

Supply Chain

Supply Chain encompasses all activities and information associated with the flow and transformation of goods and services from the raw materials stage through to the end-user.

From what do Operations and Supply Chain processes consist?

A process is made up of one or multiple activities that transform inputs into outputs. Operations and Supply Chain processes can be categorized as follows:

  • Plan: Involves the processes that are needed to operate an existing supply chain strategically;
  • Source: The selection of suppliers that will deliver the goods and services needed to create the firm’s product;
  • Make: Where the product is produced or the service is provided;
  • Deliver: Also logistics processes. Delivering products to warehouses and customers, contact with customers and information systems need to be managed;
  • Return: Involves the processes for receiving worn-out, defective, and excess products back from customers and processes for supporting customers who have problems with the delivered product.

What are the differences between goods and services?

The are five essential differences between goods and services:

  • Intangibility: A service cannot be weighed or measured. This means that services innovations cannot be patented and customers cannot try the service beforehand;
  • Interaction with the customer: To be a service, the process requires a degree of interaction with the customer;
  • Heterogeneity: Services vary day to day between the customer and the servers, whereas variation in producing goods can be almost zero;
  • Perishability and time dependency: services can’t be stored;
  • Specification of a services can be defined as a package of features that affect the five senses, existing of supporting facility like location and layout, facilitating goods like variety, consistency and quantity, explicit services like training of the personnel and availability to the service, and implicit service like attitude of the personnel, waiting time and privacy.

In which ways can a firm focus?

Almost every product offered is a combination of goods and services. The Goods-Services Continuum demonstrates the focus of firms and spans firms that only produce products to firms that provide services only (pure products – core products – core services – pure services).

What is Product-Service Bundling?

Product-service bundling refers to when a firm builds service activities into its product offerings to create additional value for the customer.

Efficiency, effectiveness and value

Efficiency is doing something at the lowest possible cost.
Effectiveness is doing the things that will create most value for the customer.
Value is the attractiveness of a product relative to its cost.

How do you calculate efficiency?

An interesting relation between OCSM functions and profit is the direct impact of a cost reduction in one of these functions on the profit margin.

There are two ratios that relate to the productivity of labour employed by the firm: net income per employee and revenue (or sales) per employee.

The receivables turnover ratio measures the efficiency of a company in collecting its sales on credit:
Receivable turnover = annual credit sales / average account receivable
The lower the ratio, the longer receivables are being held and the higher the risk of them not being collected.

Another ratio is the inventory turnover, which measures the average number of times inventory is sold and replaced during the fiscal year. This ratio measures how efficient the company turns its inventory into sales.
Inventory turnover = costs of goods sold / average inventory value

The asset turnover ratio is the amount of sales generated for every dollar’s worth of assets. This measures how efficient a firm is using its assets in generating sales revenue.
Asset turnover = revenue (or sales) / total assets

How has OCSM developed?

The historical development of OCSM:

  • The Manufacturing Strategy Paradigm was developed in the late 1970s and early 1980s by researchers at the Harvard Business School;
  • Lean manufacturing, Just-In-Time and Total Quality Management became popular by the Japanese in the 1980s;
  • Standardized service quality and productivity became popular by McDonalds;
  • Total Quality Management and Quality Certification (e.g., ISO 9000) developed in the late 1980s and 1990s by Deming, Juran and Crosby;
  • Business Process Reengineering (revolutionairy instead of evolutionairy changes) was necessary in the economic recession in the 1990s and was described by Michael Hammer. Taylor (scientific management) and Frank and Lilian Gilbreth were also important in this field;
  • Six Sigma Quality tools were extended in the 1990s and can be used in many different organisations;
  • Supply Chain Management is a total system approach to managing the flow of information, materials and services from material suppliers through factories and warehouses to the end customer. Mass customization is the ability to produce a unique product exactly to a particular customer’s requirements;
  • Electronic Commerce became popular in the late 1990s because of the rise of the Internet and the use of it as an essential element of business activity;
  • Service science was a direct response to the growth of services;
  • Business analytics is the use of current business data to solve business problems using mathematical analysis.

What are the issues global enterprises have to deal with nowadays?

As operations and supply management is a dynamic field, a global enterprise challenges nowadays different issues:

  • Coordination between mutually supportive but separate organizations (existence of contract manufacturers that are specialized in performing focused manufacturing activities);
  • Optimization of global supplier, production, and distribution networks;
  • Management of customer touch points (the recognition that making resource utilization decisions must capture the implicit costs of lost customers as well as the direct costs of staffing);
  • Raising seniormanagement awareness of operations as a significant competitive weapon.

Bulletpoints:

  • Operations and Supply Chain Management (OSCM) is the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services. OCSM is concerned with the management of the entire system that produces a product or delivers a service.
  • A process is made up of one or multiple activities that transform inputs into outputs. Operations and Supply Chain processes can be categorized as follows:
    Plan: Involves the processes that are needed to operate an existing supply chain strategically;
    Source: The selection of suppliers that will deliver the goods and services needed to create the firm’s product;
    Make: Where the product is produced or the service is provided;
    Deliver: Also logistics processes. Delivering products to warehouses and customers, contact with customers and information systems need to be managed;
    Return: Involves the processes for receiving worn-out, defective, and excess products back from customers and processes for supporting customers who have problems with the delivered product.
  • The are five essential differences between goods and services:
    Intangibility: A service cannot be weighed or measured. This means that services innovations cannot be patented and customers cannot try the service beforehand;
    Interaction with the customer: To be a service, the process requires a degree of interaction with the customer;
    Heterogeneity: Services vary day to day between the customer and the servers, whereas variation in producing goods can be almost zero;
    Perishability and time dependency: services can’t be stored;
    Specification of a services can be defined as a package of features that affect the five senses, existing of supporting facility like location and layout, facilitating goods like variety, consistency and quantity, explicit services like training of the personnel and availability to the service, and implicit service like attitude of the personnel, waiting time and privacy.
  • Efficiency is doing something at the lowest possible cost.
    Effectiveness is doing the things that will create most value for the customer.
    Value is the attractiveness of a product relative to its cost.
  • An interesting relation between OCSM functions and profit is the direct impact of a cost reduction in one of these functions on the profit margin.
  • There are two ratios that relate to the productivity of labour employed by the firm: net income per employee and revenue (or sales) per employee.
  • The receivables turnover ratio measures the efficiency of a company in collecting its sales on credit:
    Receivable turnover = annual credit sales / average account receivable
    The lower the ratio, the longer receivables are being held and the higher the risk of them not being collected.
  • Another ratio is the inventory turnover, which measures the average number of times inventory is sold and replaced during the fiscal year. This ratio measures how efficient the company turns its inventory into sales.
    Inventory turnover = costs of goods sold / average inventory value
  • The asset turnover ratio is the amount of sales generated for every dollar’s worth of assets. This measures how efficient a firm is using its assets in generating sales revenue.
    Asset turnover = revenue (or sales) / total assets

 

2. How do sustainable business strategies relate to operations and supply chain management?

What is the connection between strategy and sustainability?

Strategy describes how a firm creates and sustains value for its current shareholders. By adding sustainability, future generations are taken into account.

Shareholders own one or multiple shares in the company.
Stakeholders are indirectly and directly influenced by the activities of the firm.
Firms focus more and more on stakeholders.

What is the Triple Bottom Line?

The Triple Bottom Line captures an expanded spectrum of values by evaluating a firm against the following criteria:

  • Social Responsibility: Pertains to fair and beneficial business practices toward labour, the community, and the region in which a firm conducts its business;
  • Economic Prosperity: The firm’s obligation to compensate shareholders who provide capital via competitive returns on investment;
  • Environmental Stewardship: The firm’s impact on the environment and society.

What is Operations and Supply Chain Strategy?

Operations and Supply Chain Strategy is the setting of broad policies and plans for using the firm’s resources optimally. This must be integrated with corporate strategy. Operations effectiveness is performing activities in a manner that best implements strategic priorities at minimum cost.

How do you integrate a Operations and Supply Chain Strategy with a firm’s operations capabilities?

If you want to integrate a Operations and Supply Chain Strategy with the operations capabilities of a firm, you must make decisions about the design of the process and infrastructure needed to support these processes.

Process design is selecting the right technology, arranging the process over time, determining the role of inventory in the process and determining the location of the process.

Infrastructure decisions involve the logic associated with the planning and control systems, quality assurance and control approaches, work payment structure and organization of the operations and supply functions.

Operations capabilities is a portfolio best suited to adapting to the changing product and/or service needs of a firm’s customers.

Which competitive dimensions form the competitive position of a firm?

There are seven major competitive dimensions forming the competitive position of a firm:

  • Cost or price: The choice to either make the product or deliver the service cheap;
  • Quality: The firm’s definition of how the product or service is to be made;
  • Delivery speed: The firm’s ability to make the product or deliver the service quickly;
  • Delivery reliability: The firm’s ability to deliver the product when promised;
  • Coping with changes in demand: The firm’s ability to respond to the change in demand;
  • Flexibility and New-Product introduction speed: The firm’s ability to be flexible in order to offer a wide variety of production to its customers in a given time;
  • Other product-specific criteria relate to specific products or situations: Special services can increase sales of manufactured products such as technical liaison and support, meeting a launch date, supplier after-sale support, environmental impact and other dimensions (e.g. color, size, weight).

When does a trade-off occur?

Companies cannot be good in everything. A trade-off occurs when activities are incompatible so that more of one thing necessitates less of another (e.g. high quality is viewed as a trade-off to low cost).

Straddling occurs when a company seeks to match the benefits of a successful position while maintaining its existing position.

What is the difference between order winners and order qualifiers?

An order winner is a specific marketing-orientated dimension that clearly differentiates a product from competing products. This dimension can be price, quality or reliability.

An order qualifier is a dimension used to screen a product or service as a candidate for purchase, for example the battery life of a new computer.

What are Activity-System Maps?

All activities that make up a firm’s operation relate to one another. Activity-System Maps are diagrams that show how a company’s strategy is executed by a set of supporting activities.

How can the risk associated with Operations and Supply Chain Strategies be assessed?

The management of risk is crucial for OCSM. Supply chain risk is the likelihood of a disruption that would impact the ability of a company to continuously supply products or services. Supply chain disruptions are unplanned and unanticipated events that disrupt the normal flow of goods and materials within a supply chain.

We can categorize risk along two dimensions:

  • Supply chain coordination risks that are associated with the day-to-day management of the supply chain;
  • Disruption risks which are caused by natural or manmade disasters, such as earthquakes, hurricanes and terrorism.

How does the risk management process work?

There are the three steps in the risk management process that can be applied to situations where disruptions are possible:

  • Identify the sources of potential disruptions;
  • Assess the potential impact of the risk;
  • Develop plans to mitigate the risk.

How can productivity be measured?

Productivity is a measure of how well resources are used. The formula:
Productivity = outputs / inputs
To increase productivity, this ratio must be as large as practical. However, productivity is a relative measure and should always be compared to something else. This could be competitors or the process over time.

Bulletpoints:

  • Strategy describes how a firm creates and sustains value for its current shareholders. By adding sustainability, future generations are taken into account.
    Shareholders own one or multiple shares in the company.
    Stakeholders are indirectly and directly influenced by the activities of the firm.
    Firms focus more and more on stakeholders.
  • The Triple Bottom Line captures an expanded spectrum of values by evaluating a firm against the following criteria:
    Social Responsibility: Pertains to fair and beneficial business practices toward labour, the community, and the region in which a firm conducts its business;
    Economic Prosperity: The firm’s obligation to compensate shareholders who provide capital via competitive returns on investment;
    Environmental Stewardship: The firm’s impact on the environment and society.
  • If you want to integrate a Operations and Supply Chain Strategy with the operations capabilities of a firm, you must make decisions about the design of the process and infrastructure needed to support these processes.
    Process design is selecting the right technology, arranging the process over time, determining the role of inventory in the process and determining the location of the process.
    Infrastructure decisions involve the logic associated with the planning and control systems, quality assurance and control approaches, work payment structure and organization of the operations and supply functions.
  • Operations capabilities is a portfolio best suited to adapting to the changing product and/or service needs of a firm’s customers.
  • There are seven major competitive dimensions forming the competitive position of a firm:
    Cost or price: The choice to either make the product or deliver the service cheap;
    Quality: The firm’s definition of how the product or service is to be made;
    Delivery speed: The firm’s ability to make the product or deliver the service quickly;
    Delivery reliability: The firm’s ability to deliver the product when promised;
    Coping with changes in demand: The firm’s ability to respond to the change in demand;
    Flexibility and New-Product introduction speed: The firm’s ability to be flexible in order to offer a wide variety of production to its customers in a given time;
    Other product-specific criteria relate to specific products or situations: Special services can increase sales of manufactured products such as technical liaison and support, meeting a launch date, supplier after-sale support, environmental impact and other dimensions (e.g. color, size, weight).
  • There are the three steps in the risk management process that can be applied to situations where disruptions are possible:
    Identify the sources of potential disruptions;
    Assess the potential impact of the risk;
    Develop plans to mitigate the risk.
  • Productivity is a measure of how well resources are used. The formula:
    Productivity = outputs / inputs
    To increase productivity, this ratio must be as large as practical. However, productivity is a relative measure and should always be compared to something else. This could be competitors or the process over time.
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Summary Operations and Supply Chain Management, The Core (Jacobs & Chase)

Summary Operations and Supply Chain Management, The Core (Jacobs & Chase)

This Summary of Operations and Supply Chain Management, The Core (Jacobs & Chase) is written in 2013-2014.


Chapter A: Operations and Supply Management

Operations and Supply Chain Management (OSCM) The design, operation, and improvement of the systems that create and deliver the firm’s primary products and services.

A Supply Chain encompasses all activities associated with the flow and transformation of goods and services from the raw materials stage through to the end-user, as well as the associated information flows. The management of supply chain requires effort to integrate the processes in the supply chain. To obtain a valuable chain with satisfied customers it is necessary to have an effective coordination and integration of materials through out the supply chain. Simultaneously, attention can be paid to reduction of costs.

The main task of a supplier is the supply of raw materials, semi-finished products and finished products to downstream customers. Thereby, one can apply different strategies:

  • Supplying demand at lowest possible costs

  • Responding quickly to changing requirements and demand to minimise stock outs.

  • Sharing market research for jointly development of products and services

Manufacturers assemble products and services and concerns with made-or buy decisions regarding components and semi-finished products. They purchase acquisition of goods and services. Their objectives of purchasing are to identify products and services that can be obtained externally and to develop, evaluate and determine the best supplier, price and delivery for those products and services.

Manufacturers that decide to buy instead of making products can follow three-stage process:

  • Vendor evaluation: finding potential vendors and determining likelihood of their becoming good suppliers

  • Vendor development: assuming that a firm wants to proceed with supplier, how to integrate activities into its own system?

  • Negotiations: several strategies exist to determine price(s)

Distributors distribute products from manufacturers to retailers and customers. They are responsible for the temporarily storage of products in warehouses and the balance of fluctuations in production. In addition, distributors handle the transportation of products (e.g. trucks, trains, airplanes, ships or pipelines)

Customers can buy directly products and services at supermarkets or service organisations or get direct delivery of products after ordering on the Internet or phone.

Activities associated from supplier to customer can be described as downstream flows, which is contrary to upstream flows (customer to supplier).The reasons for the occurrence of upstream flows are:

  • recycling of products

  • money back guarantee for unsatisfied customers

  • repairs

  • empty packaging materials

  • waste

  • returned new products

Product-service bundling When a firm builds service activities into its product offerings to create additional value for the customer

Efficiency Doing something at the lowest possible cost

Effectiveness Doing the things that will create most value for the customer

Value The attractiveness of a product relative to its cost

Operations and supply chain processes can be categorized as follows:

  • Planning: processes needed to operate an existing supply chain strategically

  • Sourcing: selection of suppliers that will deliver the goods and services needed to create the firm’s product

  • Making: where product is produced or the service is provided

  • Delivering: referred to logistic processes

  • Returning: involves the processes for receiving worn-out, defective, and excess products back from customers and support for customers who have problems with delivered product

The five characteristics of services:

  • Intangible process

  • Requires the degree of interaction with the customer to be a service

  • Heterogeneous (varying day to day between the customer and the servers)

  • Perishable and time dependent

  • Specification of a services can be defined as a package of features (supporting facility, facilitating goods, explicit service, implicit service)

The Goods-Services Continuum

Outsourcing means that a third party logistics executes activities of a company. To gain success the third logistics provider actively needs to help solving problems, if there is perfect information exchange and trust between parties.

There are three types of production processes:

  • Postponement: delaying any modifications or customisation to the product as long as possible in production process (e.g. Hewlett-Packard adds power system the moment the destination country of the printer is known)

  • Channel assembly: postponement of final assembly until distribution (e.g. Dell makes a computer in its warehouse from standardised components after the order of a customer)

  • Standardisation: Reduction of the number of variations in materials and components as an aid to reduce costs

Mass customization The ability to produce a unique product exactly to a
particular customer’s requirements

Business analytics The use of current business data to solve business
problems using mathematical analysis.

As operations and supply management is a dynamic field, a global enterprise challenges nowadays different issues:

  1. Coordination between mutually supportive but separate organizations (existence of contract manufacturers that are specialized in performing focused manufacturing activities)

  2. Optimization of global supplier, production, and distribution networks

  3. Management of customer touch points (recognition that making resource utilization decisions must capture the implicit costs of lost customers as well as the direct costs of staffing)

  4. Raising senior management awareness of operations as a significant competitive weapon

  5. Sustainability and the triple bottom line (economic, employee and environmental viability)

Sustainability The ability to meet current resource needs without compromising
the ability of future generations to meet their needs.

Triple bottom line A business strategy that includes social, economic, and
environmental criteria.

Chapter B: Strategy and Sustainability

Shareholders Own one or more shares of stock in the company
Stakeholders Indirectly or directly influenced by the activities of the firm.

The Triple Bottom Line captures an expanded spectrum of values by evaluating a firm against the following criteria:

  • Social: pertains to fair and beneficial business practices toward labor, the community, and the region in which a firm conducts is business

  • Economic: the firm’s obligation to compensate shareholders who provide capital via competitive returns on investment

  • Environmental: the firm’s impact on the environment and society at large

Operations and supply The setting of broad policies and plans for using the firm’s
chain strategy resources optimally and must be integrated with corporate
strategy.
Operations effectiveness Performing activities in a manner that best implements
strategic priorities at minimum cost.

A planning strategy involves a set of repeating activities, which are performed in different time intervals and in a closed-loop process:

  • Develop/Refine the Strategy (yearly)

    • Define vision, mission and objectives

    • Conduct strategic analysis

    • Define strategy competitive priorities

  • Translate the Strategy (quarterly)

    • Product design/revision initiatives

    • Sourcing/location of facilities initialization

  • Major Focus Points and Projects

    • Major operations initiatives

    • Major logistics/distribution initiatives

There are seven major competitive dimensions forming the competitive position of a firm.

  1. Cost or price: The choice to either make the product or deliver the service cheap

  2. Quality: The firm’s definition of how the product or service is to be made

  3. Delivery speed: The firm’s ability to make the product or deliver the service quickly

  4. Delivery reliability: The firm’s ability to deliver the product when promised

  5. Coping with changes in demand: The firm’s ability to respond to the change in demand

  6. Flexibility and New-Product introduction speed: The firm’s ability to be flexible in order to offer a wide variety of production to its customers in a given time.

  7. Other product-specific criteria relate to specific products or situations. Special services can increase sales of manufactured products such as:

  • Technical liaison and support

  • Meeting a launch date

  • Supplier after-sale support

  • Environmental impact

  • Other dimensions (e.g. color, size, weight)

Trade-offs Occur when activities are incompatible so that more of one thing necessitates less of another (e.g high quality is viewed as a trade-off to low cost).

Straddling Occurs when a company seeks to match the benefits of a successful position while maintaining its existing position

Order winner A specific marketing-orientated dimension that clearly differentiates a product from competing products

Order qualifier A dimension used to screen a product or service as a candidate for purchase

Activity-system Diagrams that show how a company’s strategy is delivered maps through a set of supporting activities

Supply chain risk The likelihood of a disruption that would impact the ability of a company to continuously supply products or services

Productivity a measure of how well resources are used.

Partial measure

Input factors: labor, capital, materials, energy

Multifactor measure includes some, but not all inputs:

Total measure includes all outputs and inputs.

Chapter C: Strategic Capacity Management

Capacity Management in Operations is the ability to hold, receive, store or accommodate a number of customers in a system. Capacity is the amount of resource inputs available relative to output requirements over a particular period of time. However, it does not imply the duration of its sustainability. When looking at capacity, operations managers look at inputs and outputs. Operations management focus also the time dimension of capacity. Capacity planning is views in the following three time durations:

  • Long range greater than one year

  • Intermediate range monthly or quarterly plans for the next 6 to 18 month

  • Short range less than one month

Strategic capacity planning
Finding the overall capacity level of capacity-intensive resources to best support the firm’s long-term strategy.

Capacity The output that a system is capable of achieving over a period of time.

The Best Operating Level is a level of capacity for which the process was designed and thus is the volume of output at which average unit cost is minimized. The determination of the minimum is difficult as it includes a complex trade-off between the allocation of fixed overhead costs and other costs. A measure to reveal how close a firm is to its best operation level is by calculating the capacity utilization rate.

Capacity utilization rate Capacity used / Best operating level

Economies of scale A cost advantage for companies as the volume increases, the average cost per unit of output drops.

Focused factory When a production facility works best when it focuses on a fairly limited set of production objectives. This concept is focused on the capacity by operationalizing the mechanism by plant within a plant (PWP).

Plant within a plant An area in a larger facility that is dedicated to a specific production objective. This can be used to operationalize the focused factory concept.

Capacity Flexibility The ability to rapidly increase or decrease production levels, or to shift production capacity quickly from one to another.

  • Flexible plants The ultimate in plant flexibility is the zero-changeover-time plant. Such a plant can adapt to change by the use of
    movable equipment, knockdown walls, and easily accessible.

  • Flexible processes Flexible manufacturing processes permit low-cost switching from one product to another and enable economies of scope.

  • Flexible workers Flexible workers have multiple skills and the ability to switch easily from one kind of task to another. They require broader training than specialized workers and need managers and staff support to facilitate quick changes in their work assignments.

Economies of scope When multiple products can be produced at lower cost in combination than they can be separately.

Changing the capacity it is important to maintain system balance, frequency of capacity additions or reductions, and the use of external capacity. The objectives of strategic capacity planning are to provide an approach for determining the overall capacity level of capital-intensive resources that best supports the company’s long-range competitive strategy. It has an impact on:

  • Firm’s response rate

  • Cost structure

  • Inventory policies

  • Management and staff support requirements

Capacity cushion Refers to the amount of capacity in excess of expected demand. It is the reserve capacity that handles sudden increases in demand or temporary losses of production capacity.

Deterministic Performance Estimation

Design capacity is the theoretical maximum output of a system or process in a given period.

Effective capacity The capacity that can be expected given the product mix, methods of scheduling, maintenance and standards of quality.

Interarrival time The time between two subsequent arrivals of products at their entrance in the process.
Throughput time The time that passes between the moment at which the customer/product enters the system and the moment at which
the customer/product is ready
Arrival rate The number of products that arrive per time unit
Departure rate The number of products that leave the system per time unit. It is determined by the speed of the bottleneck. Only if the arrival process is the bottleneck, then the departure rate equals the arrival rate.

Bottleneck An operation that limits output in the system and are constraints that limit output of production. If none of the machines, workers, etc. in the system is a bottleneck, then we say that the arrival process is the bottleneck.

Determining a bottleneck requires the following:

  1. Calculate the design capacity of each process.

  2. Calculate the expected number of products arriving at the system

  3. If design capacity of all processes is sufficient, arrival process is bottleneck; else, process with smallest design capacity is bottleneck

The utilisation rate rho for a workstation consisting of n identical, parallel servers can be computed from rho = λ(n x μ) 
λ: arrival rate
μ: production rate

Productive utilisation rate is calculated similar to normal utilisation but exludes set-up times.

The Work-in Progress (WIP): L = λW

-L is the average WIP,

-W the average throughput time,

- λ is the average number of produced units per time-unit,

There are three methods to calculate the capacity:

Deterministic performance estimation

Analytical modelling (such as waiting lines)

Simulation (approximation of reality)

  • Widely applicable

  • Easy and fast

  • Gives a rough estimate only

  • Applicability is limited

  • Complex calculation

  • Limited number of performance criteria

  • Exact results

  • You cannot determine all characteristics or not all characteristics can be modelled.

  • You cannot incorporate all external influences.

  • Incorporated external influences will be approximated.

In deterministic performance estimation we assume there is no uncertainty but overly optimism. Therefore, the deterministic estimate will be

  • too low for throughput times

  • too low for Work-In-Progress

  • quite good for the departure rate

  • quite good for the utilisation rate

Chapter D: Manufacturing Processes

Lead time The time needed to respond to a customer order

Customer order decoupling point (CODP)
Determines where inventory is positioned to allow process or entities in the supply chain to operate independently. It separates order-driven activities from forecast-driven activities. As closer the decoupling point is to the customer, the quicker the customer can be served.

Make-to-stock Firms that serve customers from finished goods inventory. Essential issue in satisfying customers is to balance the level of inventory against the level of customer service.

  • Easy with unlimited inventory but inventory costs money

  • Trade-off between the costs of inventory and level of customer service must be made

  • Forecasting is very important task

Firms applying make-to-stock use lean manufacturing to achieve higher service levels for a given inventory investment

Assemble-to-order Used by those firms that combine a number of preassembled modules to meet a customer’s specification.

  • Requires a design that enables as much flexibility as possible in combining components

  • Significant advantages from moving the customer order decoupling point from finished goods to components

  • Manufacturing results in customer specific products, assembled in a similar way

Make-to-order Used by firms that make the customer’s product from raw materials, parts and components. Essential issue is to deliver on time, while keeping costs low through high capacity utilization

  • Catalogue products with small demand and specific customer details/specification

  • Limited inventory of raw materials, extensive planning and scheduling efforts

Engineer-to-order Used by firms working with the customer to design the product, and then make it from purchased materials, parts and components.

  • Company translates the customer’s requirements into a design and a product

  • Often the design of the products requires novel solutions and a lot of engineering knowledge, manufacturing might be relatively easier, but still complex (many suppliers, materials, and subcontractors)

Lean manufacturing

To achieve high customer service with minimum levels of inventory investment.

There are forces which influences the position of the decoupling point:

  • Process constraints (long lead time, bad process control)

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