CRC Press Taylor &. Francis Croup Boca Raton London New York CRC Press is an imprint of the Taylor & Francis Group, an Informa business

Basics of Supply Chain Management Jayanta Kumar Bandyopadhyay CRC Press Taylor &. Francis Croup Boca Raton London New York CRC Press is an imprint of the Taylor & Francis Group, an Informa business

Contents Preface Aiithor xv xvii 1 Introduction 1 1.1 Introduction 1 1.2 Elements of Supply Chain 2 1.3 Operating Environment of Supply Chain 4 1.4 Manufacturing Flanning and Control System 5 1.5 Flanning Hierarchy in a Manufacturing Flanning and Control System 6 1.5.1 Business Plan 7 1.5.2 Production Plan 8 1.5.3 Master Production Schedule 9 1.5.4 Material Requirements Flanning 10 1.5.5 Purchasing and Production Activity Control... 10 1.6 Capacity Management 11 1.7 Computerized Manufacturing Resource Flanning System 12 1.8 Enterprise Resource Flanning Systems 13 1.9 Distribution Flanning Systems 14 1.9.1 Pull System 15 1.9.2 Push System 15 1.9.3 Distribution Requirements Flanning System... 16 1.10 Basic Production Flanning Strategies 16 1.10.1 Demand Malching 17 iii

iv Contents 1.10.2 Production Leveling 17 1.10.3 Subcontracting 18 1.10.4 Hybrid (Mixed) Strategy 19 2 Transformation of Demand into Supply: Designing Products to Meet Customer Expectations 21 2.1 Introduction 21 2.2 Designing Products to Meet Customer Needs and Expectations 22 2.3 Product Design Determines Product Quality 23 2.4 Total Quality Management and Product Design 23 2.5 Quality Function Deployment and Product Design... 24 2.6 Taguchi's Methodology for Product Design 26 2.7 Product Design Strategies 26 2.8 Distinctive Competence and Product Design 27 2.9 Order-Winning Criteria and Order Qualifiers and Product Design 28 3 Transformation Process Choices for Making Products Conforming to Product Design Specifications and Tolerances 29 3 1 Introduction 29 3.2 Traditional Manufacturing Process Choices 30 3.2.1 Mass-Scale Production 30 3.2.2 Batch Production 30 3.2.3 Unit Production 30 3 3 Just-in-Time Manufacturing 31 3.4 Objectives of the JIT Approach to Manufacturing 33 3.4.1 Minimizing Defects 34 3.4.2 Minimizing Setup Time 34 3-4.3 Minimizing Level of Inventory 35 3.4.4 Minimizing Lead Time 36 3.4.5 Minimizing Material Handling Time 36 3.4.6 Minimizing Machine Breakdowns 37 3.4.7 Improving Flexibility of the Manufacturing System 38

Contents v 3.5 The Key Elements of the JIT Concept 38 3.6 Principles of JIT Manufacturing 39 3.6.1 Elimination of Waste and Addition of Value to the Product 40 3.6.1.1 Waste Caused by Poor Product Specification and Design 40 3.6.1.2 Waste Caused in Manufacturing...41 3.6.2 Continuous Improvement and Total Quality Management 44 3-7 Manufacturing Process Design for JIT Production 44 3.7.1 Group Technology and Flexible Manufacturing Systems 45 3.7.2 Manufacturing Cell Design Using GT 49 3.7.3 Flexible Manufacturing System 50 3.8 Characteristics of a JIT Environment 52 3.8.1 Flow-Based Repetitive Manufacturing 52 3.8.2 Manufacturing in Work Cells 53 3.8.3 Process and Machine Flexibility 54 3.8.4 Quick-Change Setup 55 3.8.5 Uninterrupted Flow of Materials 56 3 9 Supplier Relations in JIT Environment 58 3.10 Employee Involvement and Empowerment in JIT Environment 59 3-11 Effects of JIT on Manufacturing Flanning and Control System 60 3.12 Effects of JIT on Production Flanning 60 3.13 Effects of JIT on Master Production Scheduling 60 3-14 Effects of JIT on Material Requirements Flanning 61 3.15 Effects of JIT on Capacity Management 62 3.16 Effects of JIT on Inventory Management 63 3.17 Effects of JIT on Organization Design 63 3.18 Effects of JIT on Job Design 64 319 Total Quality Management and JIT 64 3.19.1 Strategie Role of Quality 65 3.19 2 Quality and Productivity 65 3.19 3 Cost of Quality 66

Contents 3.19.4 Quality and Market Share 66 3.19 5 Zero-Defect Quality 67 3.19.6 Continuous Improvement 67 3.19.7 Management Flanning Tools for Quality Flanning 68 3.20 Benchmarking 68 3.21 Taguchi's Methodology for Quality Product Design 69 3.22 Mistake Proofing and Automatic On-Line Inspection 69 3.23 Statistical Concepts for Quality Management 69 3.23.1 Concept of Variations (Common versus Assignable Causes) 70 3.24 Statistical Quality Control Charts 70 3.25 Process Capability Analysis 71 Demand Forecasting and Demand Management...75 4.1 Introduction 75 4.2 Understanding Target Customers 75 4.2.1 Understanding Customer Expectations and Values 76 4.2.2 Customer Relationships 77 4.3 Demand Management 78 4.4 Demand Forecasting 79 4.4.1 Characteristics and Patterns of Demand 80 4.4.2 Stable versus Dynamic Patterns of Demand... 81 4.4.3 Dependent versus Independent Demand 81 4.5 Principles of Forecasting Demand 82 4.6 Collection and Preparation of Data for Forecasting 83 4.7 Forecasting Methods 85 4.7.1 Qualitative Methods 85 4.7.2 Causal Methods 86 4.7.3 Quantitative Methods of Forecasting Using Historical Data 87

Contents vii 4.8 Some Quantitative Forecasting Techniques for Forecasting Short-Range Demand 87 4.8.1 Simple Moving Average Method 88 4.8.2 Weighted Average Method 89 4.8.3 Exponential Smoothing Method 90 4.9 Forecasting Seasonal Demand 92 4.9.1 Forecasting Seasonal Demand Using the Seasonal Index Method 92 4.9.2 De-Seasonalization of Demand 94 4.10 Forecasting Long-Range Trend 96 4.10.1 Forecasting Long-Range Trends Using the Graphical Method 97 4.10.2 Forecasting Long-Range Trend Using Least Squares Regression Analysis 98 4.11 Tracking the Forecast for Error 99 4.11.1 Forecast Error 100 4.11.1.1 Bias 100 4.11.1.2 Random Variation 101 4.11.2 Mean Absolute Deviation and Tracking Signal 101 4.11.3 MAD and Normal Distribution 102 5 Master Flanning 109 5.1 Introduction 109 5.2 Manufacturing Flanning and Control System 110 5.3 Priority and Capacity 110 5.3.1 Priority 110 5.3.2 Capacity 111 5.4 Flanning Hierarchy 111 5.4.1 Business Plan 112 5.4.2 Production Plan 113 5-4.3 Master Production Schedule 114 5.4.4 Material Requirements Plan 114 5.4.5 Capacity Requirements Flanning 115 5.4.6 Production and Purchasing Activity Control... 115

viii Contents 5.5 Computerized Manufacturing Flanning and Control System 116 5.6 Production Flanning Strategies 117 5.7 Basic Production Flanning Strategies 119 5.7.1 Demand Matching 119 5.7.2 Production Leveling 120 5.7.3 Subcontracting 121 5.7.4 Hybrid (Mixed) Strategy 121 5.8 Developing a Production Plan 122 5.8.1 Developing a Production Plan Using Level Production 122 5.8.2 Developing Production Plan Using Demand Matching 124 5.8.3 Developing a Production Plan Using Make-to-Order Plan 126 5.8.4 Developing an Assemble-to-Order Plan 127 5.8.5 Developing a Make-to-Order Plan Using Level Production 128 5.9 Resource Requirements Flanning 129 6 Master Production Scheduling 137 6.1 Introduction 137 6.2 Master Production Schedule 138 6.2.1 Master Production Schedule and Production Plan 138 6.3 Preparing a Master Production Schedule 140 6.3.1 Preparing a Preliminary Master Production Schedule 141 6.3.2 Rough-Cut Capacity Flanning 143 6.3.2.1 Resource Bill 143 6.3.3 Resolution of Differences 144 6.4 Master Scheduling Decisions 145 6.5 MPS and Delivery Promises 145 6.5.1 Available to Promise 145 6.6 Flanning Horizon for an MPS 147

Contents ix 6.7 Time Fences 147 6.7.1 Time Fence Zones 148 6.8 Summary and Conclusion 149 7 Material Requirements Flanning 153 7.1 Introduction 153 7.2 Material Requirements Flanning 153 7.3 Objectives of MRP 154 7.4 MRP System 154 7.5 Inputs to the MRP System 155 7.5.1 Master Production Schedule 155 7.5.2 Bill of Materials 155 7.5.3 Where-Used Report and Pegging Report... 156 7.5.4 Inventory Records 156 7.5.5 MRP Process 156 7.5.6 Exploding and Offsetting 157 7.5.7 Planned Order Receipt and Release 157 7.5.8 Gross and Net Requirements 157 7.6 Capacity Flanning 158 7.6.1 Flanning Levels 159 7.6.1.1 Resource Flanning 159 7.6.1.2 Rough-Cut Capacity Flanning 160 7.6.1.3 Capacity Requirements Flanning... 160 7.7 Available Capacity 160 7.7.1 Unit of Measurement l6l 7.7.2 Levels of Capacity 162 7.7.3 Determining Available Capacity (Time) 162 7.8 Work Center Utilization Rate 163 7.9 Work Center Efhciency 163 7.10 Work Center Rated Capacity 163 7.11 Work Center Demonstrated Capacity 164 7.12 Work Center Required Capacity 164 7.13 Inputs to Capacity Requirements Flanning 165 7.13.1 Open Shop Order File 165 7.13.2 Planned Order Releases from MRP 165

x Contents 7.13.3 Routing File 165 7.13.4 Work Center Capacity File 166 7.14 Shop Calendar 166 7.15 Scheduling Orders 166 7.16 Load Profile 167 7.17 Production and Purchasing Activity Control 167 7.18 Flanning Activities 169 7.18.1 Implementation Activities 169 7.18.2 Controlling Activities 170 7.19 PAC in Different Types of Manufacturing Systems 170 7.19.1 PAC in Line (Continuous-Flow) Manufacturing 170 7.19.2 PAC in Intermittent (Batch) Manufacturing 171 7.19.3 PAC in Project Manufacturing 172 7.20 Data Requirements for Processing PAC 172 7.20.1 Flanning Files 173 7.20.2 Data Requirements for Intermittent Manufacturing 175 7.21 Order Preparation 176 7.22 Scheduling 176 7.23 Manufacturing Lead Time 177 7.24 Scheduling Techniques 178 8 Inventory Management 181 8.1 Introduction 181 8.2 Aggregate Inventory Management 182 8.3 Physical Classification of Inventory 183 8.4 Supply and Demand Patterns of Inventory 183 8.5 Functions of Inventories in Batch Production Systems 184 8.6 Objectives of Inventory Management 186 8.6.1 Customer Service 187 8.6.2 Operating Efficiency 187 8.7 Inventory Costs 189

Contents xi 8.8 ABC Inventory Control 193 8.8.1 Steps in Making an ABC Analysis 194 8.8.2 Control Based on ABC Classification 194 8.9 Inventory Ordering System Models 198 8.9.1 Lot Size Decision Rules 198 8.10 Basic Economic Order Quantity Model 200 8.10.1 Development of the Basic EOQ Model (Formula) 200 8.10.1.1 Trial-and-Error Solution 201 8.10.2 Variations of the EOQ Model 203 8.10.2.1 Monetäry Unit Lot Size Model 203 8.10.2.2 Noninstantaneous Receipt Model... 204 8.10.3 Quantity Discount Model 205 8.10.4 EOQ Model When Costs Are Not Known...207 9 Purchasing Management 215 9 1 Introduction 215 9.2 Purchasing Management 216 9.3 Purchasing Cycle 217 9.3.1 Purchase Requisition 217 9.3.2 Selecting the Vendor 217 9.3.3 Quotation 218 9.3.4 Purchase Order 218 9.3.5 Following Up on Delivery 218 9-3.6 Receiving and Accepting Goods 219 9.3.7 Approving Vendor's Invoice for Payment... 219 9.4 Developing Specification 220 9.4.1 Description of the Product 220 9.4.2 Quantity and Quality Requirements 220 9.4.3 Miscellaneous Other Specifications 221 9.5 Selecting Suppliers 221 9.5.1 Checking Technical and Manufacturing Capability of Suppliers 221 9.5.2 Ensuring Reliability of Supply 221 9.5.3 Supplier Location 222 9.5.4 Price 222

xii Contents 9.5.5 Price Determination 222 9.5.6 Final Selection of the Vendor 223 9.6 Supplier Development 223 9.7 Supplier Relationship Management 224 9.7.1 Supplier Relationship Management Software 225 10 Physical Distribution Management 227 10.1 Introduction 227 10.2 Physical Supply Management 227 10.3 Physical Distribution Management 228 10.4 An Integrated Physical Distribution System 229 10.5 Modes of Transportation 230 10.6 Types of Carriers 231 10.7 Concept of Total System Cost 232 10.8 Example Problems 232 11 Distribution Inventory Management 235 11.1 Introduction 235 11.2 Distribution Inventories 236 11.3 Distribution Inventory Management Systems 236 11.3.1 Pull System 236 11.3.2 Push System 237 11.3.3 Distribution Requirements Flanning 237 11.4 Warehousing 238 11.4.1 Processing Activities in a Warehouse 238 11.4.2 Warehouse Management 239 11.4.3 Effective Use of Warehouse Space 239 11.4.4 Effective Stock Location in a Warehouse...240 11.4.5 Effective Order Picking and Assembly 240 11.4.6 Effective Packaging 241 11.5 Material Handling in a Warehouse 241 11.6 Multiwarehouse System 242 11.7 Cost Characteristics in Multiwarehouse System 242 11.8 Total Cost Curve of a Multiwarehouse System 243

Contents xiii 12 Global and Other Issues in SCM 245 12.1 Introduction 245 12.2 Total Quality Management in the Global Supply Chain 246 12.2.1 Top Management Commitment to Quality...247 12.2.2 Total Customer Satisfaction in the Global Supply Chain 247 12.2.3 Quality Product Design in the Global Supply Chain 247 12.2.4 Quality Control for Ensuring Product Quality in a Global Supply Chain 249 12.3 Respecting Human Resources and Human Rights in the Global Supply Chain 252 12.4 Supplier Relationship Management in the Global Supply Chain 254 12.4.1 Supplier Development 254 12.4.2 Supplier Relationship Management Software 255 12.5 Customer Relationship Management in the Global Supply Chain 255 Appendix A: Cases in Supply Chain Management 257 Appendix B: Self-Study Practice Questions for Basic Supply Chain Management 283 Bibliography 349 Index 353