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1 Production Planning and SUPPLY CHAIN MANAGEMENT Haeryip Sihombing Universiti Teknikal Malaysia Melaka (UTeM) BMFP a Supply Chain: the sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or. Eliminate non value added steps or work, become more competitive than the ones they are competing against. Sometimes referred to as value chains Typical Supply Chain for a Manufacturer Typical Supply Chain for a Service Storage Mfg. } Storage Dist. Retailer }Storage Service Purchasing Production Sales Purchasing Production Sales Silos in Departments Single Department best efficiency High inventories Stage Two: Functional Integration Basic MRPII and demand management Fix the basics

2 Purchasing Production Sales Purchasing Production Sales Stage Two: Functional Integration Stage Two: Functional Integration Stage Three: Internal Integration Stage Three: Internal Integration ERP across the supply chain (end to end) Stage Four: External Integration s Internal Supply Chain s External integration. Nirvana status Supply Chain Flows: Horizontal Elements of Table 16.1 Consumer Information Product Cash Element s Forecasting Design Processing Inventory Purchasing s Location Logistics Typical Issues Determining what customers want Predicting quantity and timing of demand Incorporating customer wants, mfg., and time ling quality, scheduling work Meeting demand while managing inventory costs Evaluating suppliers and supporting operations Monitoring supplier quality, delivery, and relations Determining location of facilities Deciding how to best move and store materials The Business Case for Supply Chain Supply chains compete, not companies Most opportunities for cost reduction and/or value enhancement lie at the interface between supply chain partners Supply Chain Performance Drivers 1. Quality 2. Cost 3. Flexibility 4. Velocity 5. What is the right order?

3 Today s Drumbeat: Bullwhip is King! Inventory Hides the Problems Consumer Purchases Store Retailer HQ Promotions? Initiatives? HQ Facility A Inventory B Volatile Demand Inaccurate Forecasts Unreliable s Quality Problems Bottlenecks Retail P&G s Why is inventory a waste? Cost of holding inventory - globally companies are beginning to use 25% of inventory value: Cost of capital Opportunity cost (what we could have done with the money if we had it in our hands) Obsolescence Storage and handling costs and overhead Potential: losses/theft What is the SOLUTION? SPEED How Long Is the Logistics Pipeline? Raw Stock Sub-Assembly Stock Intermediate Stock Product Assembly Finished Stock at Central Warehouse In-Transit Regional Centre Stock Order Cycle (Order-Cash) Cumulative Lead-Time (Procurement to Payment)

4 Demand Predictability and Lead-time Achieving Responsiveness and Agility in the Supply Chain Substitute information for inventory Partner with s/s to reduce losses Forecast Error t o + - t n Seek to reduce complexity (not necessarily variety) and to increase flexibility (Agility) Manage processes not just functions Utilize appropriate performance metrics, e.g. endto-end pipeline time Lead-Time Speed of Supply Chain (Velocity) Traditional Supply Chain Inventory velocity Sequential backward action The rate at which inventory(material) goes through the supply chain Goods flow Filtering of real demand by inventory Significant batching activity Noise in demand patterns Forecast dependent Information velocity The rate at which information is communicated in a supply chain Cash velocity??? Manufacturer DC Store s Demand flow Benefits of BREAK Lower inventories Higher productivity Greater agility Shorter lead times Higher profits Greater customer loyalty

5 % TSR Challenges Barriers to integration of organizations Getting top management on board Dealing with trade-offs Small businesses Supply Chain: to close Supply chain management is now more and more a key factor to become the preferred suppliers of retailers and it implies deep understanding of the whole supply network and an upfront Agile design Variability and uncertainty Long lead times Future Supply Chain - Integrated Continuous Flow Continuous Goods Flow to the Consumer Case Study DELL COMPUTERS Timely & Paperless Information Flow Dell Computers: A success story Michael Dell: Founder s milestones: Total Share Holder Return A Jun- A Oct- D F A Jun- A Oct- D F pr- 96 ug- 96 ec- eb- pr- 97 ug- 97 ec- eb Dell S&P 1965 Born on Feb 23, 1983 Starts rebuilding PCs, 1984 Drops out of college, 1985 At 20, his company reaches 34 million, 1995 Becomes the youngest CEO ever to make the fortune 500, 1997 At 32 he has over 4 Billion in Dell s stocks

6 Evolution to a faster model: Fact: Dell Supply System 1 Industry Model: Plant Channels s Hard Drive Dell s Factory (Texas) Orders 2 Dell s direct model: Plant s UPS 3 Virtual Integration Plant s Sony Monitors Factory (Mexico) 2. Focus on moving product Fast Inventory Velocity is tracked closely Real time information on demand Communicate replenishment needs regularly, to some suppliers hourly Fine - tune the sales forecast with major customers, individually. Keys to Success 1. Virtual Integration (Flexibility) 2. Change the focus from how much inventory there is, to how fast it s moving.(responsiveness) 1. Virtual Integration Fact: Inventory a Use of technology to enable coordination across boundaries to achieve new levels of productivity b Partners are treated as if they re inside the company c Focus on creating value for their customers. Dell Inventory: 11 Days Industry Average: 80 Days

7 Billions of US Dollars Fact: Speed to market Fact: Sales Growth If Intel comes up with a 500 Mhtz MMX processor in Oct-1, Dell would deliver it to you 69 days sooner: Dell = Oct-11 Industry Avg.. = Dec-20 Sales Days 69 Days Dell Computers Logistics strategy plays an important role in Dell Computer s impressive financial performance. Dell s direct distribution eliminates as much as 2 months of warehouse and retail storage. About 80% of the cost of a PC consists of components. Component prices fall while on the shelves at 30% per year. The consequences of logistics delays are overpriced products and possible obsolescence. Direct sales also helps Dell in forecasting. Case Study 2 Marks and Spenser vs Zara?

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