basic definitions , types

1. SUPPLY CHAIN
MANAGEMENT
Lecture 7

2. 2
SUPPLY CHAIN PLANNING AND CONTROL
LEARNING OBJECTIVES
Explain how materials flow is planned and executed within
a focal firm and between the partners in a supply chain
Explain how lean thinking can be used improve
performance by avoiding build-up of waste within and
between the supply chain processes

3. KEY ISSUES
1 The supply chain ‘game plan’: addresses the challenges of planning
and controlling material flow and information flow within the focal
firm, between supply partners and across the supply chain as a
whole.
2 Just-in-time: examines the implications of just-in-time thinking for
logistics, especially for material control methods like reorder point
and material requirements planning.
3 Lean thinking: a cyclical route to seeking perfection by eliminating
waste and thereby enriching value from the end-customer
perspective.

4. 4
PLANNING AND CONTROL TIME
FRAMES WITHIN FOCAL FIRM
 Long term (> 1 year, strategic capacity planning)
 Medium term (1 year, match supply with demand
forecasts)
 Short term (day, week to handle rapid demand changes,
supply shortages, facility problems)

5. PLANNING AND CONTROL TIME FRAMES
(EXAMPLE: CAR INDUSTRY)
● Long term: These decisions are essentially strategic, and answer the questions how
much capacity is needed, when and of what type? Thus Mercedes Benz may plan new
model ranges for 20 years ahead – including outline volumes, internal and supplier
capacities and distribution strategies.
● Medium term: to match supply and demand. Here, Mercedes may plan in more
detail over the next 12 months to ensure that forecast demand can be met by correct
material provision, together with capacity and resource (such as manpower) availability.
The plan would be refreshed monthly.
● Short term: to meet day-to-day demand. Here, Mercedes makes weekly production
plans to meet specific customer orders. There may be numerous changes that affect
achievement of the medium-term plan. These include changes in customer demand,
facility problems and supplier shortages. The short-term plan helps managers to decide
what corrective actions are needed to resolve such problems, and would be refreshed
daily or weekly.

6. 6
MAIN MODULES IN MANUFACTURING,
PLANNING AND CONTROL (MPC 1)
 Demand management:
 Demand from all sources
 External (forecasts and orders)
 Internal (other firms in the organization /SC)
 Demand management is a planning methodology.
 Companies use it to forecast and plan how to meet demand for services
and products.
 Demand management improves connections between operations and
marketing.
 The result is tighter coordination of strategy, capacity and customer needs

7. 7
MAIN MODULES IN MANUFACTURING,
PLANNING AND CONTROL (MPC 2)
Resource planning
Demand must be moderated with capacity to deliver.
 Marketing plan must be in accordance with the realities of
what can be done.
 Both longer term manufacturing capacity (strategic output
planning) and short term machine and manpower loading
(input planning)

8. MAIN MODULES IN MANUFACTURING,
PLANNING AND CONTROL (MPC 2)
 Sales and operations planning (SOP), is concerned with matching the
demand management and resource planning.
 Compatible measures of demand and capacity are used to maintain
balance between demand and
 Master Production Scheduling (MPS) is a plan for individual
commodities to be produced in each time period such as production,
staffing, inventory, etc.
 It is usually linked to manufacturing where the plan indicates when and
how much of each product will be demanded

9. 9
MAIN MODULES IN MANUFACTURING,
PLANNING AND CONTROL (MPC 3)
 Material and capacity planning
 From overall demand by SKU (stock keeping units) to parts and subassembly
planning, same story with match between capacity available and the desired
production for each part.
 MPC execution system: the outputs from capacity and material plans are sets of
instructions to suppliers, manufacturers and distribution.
 Purchase orders, schedules for MTS, shipping orders.
 ”Front end”, ”engine” and ”back end” are connected with an ERP system where
MPC can be coordinated with HR management, finance, sales and marketing.

10. 10
JIT AND LEAN HAS BACKGROUND FROM JAPAN,
AND TOYOTA IN PARTICULAR
 Japan was a poor country after second world war. Shortage of capital.
Developed low cost production
 Domestic demand for a great variety of vehicles
 Political will to build a car industry. Protectionism. The Korean war.
 Adoption of Ford’s production system to local conditions
 Multi purpose machines and new control systems as KANBAN, team work,
loyalty, flexibility, quality work
 JIT production, Toyotas production system (Taiichi Ohno , 1988)

11. JUST IN TIME (JIT)
 It is an inventory management method in which you keep as little
inventory on hand as possible.
 That means you don't stockpile products and raw materials just in case
you need them
 You simply reorder products to replace those you've already sold
 It concept is a manufacturing workflow methodology aimed at reducing
times and costs within production systems and the distribution of materials
11

12. JUST-IN-TIME MANAGEMENT
 Use of superior software are carry out in the entire process till delivery, which
increases efficiency and eliminates the scope for error as each process is
monitored
 A just-in-time strategy eliminates overproduction, which happens when the
supply of an item in the market exceeds the demand and leads to an
accumulation of unsalable inventories.
 These unsalable products turn into inventory dead stock, which increases
waste and consumes inventory space.
 In a just-in-time system you order only what you need, so there’s no risk of
accumulating unusable inventory

13. 13
CONSEQUENCES FOR SUPPLIERS (1)
Advantages of JIT for a supplier
 Supplier is able to plan his production volume much better because he’s
informed regularly about the quantities to be delivered.
 Administrative savings: supplier’s and customer’s production and materials
planning systems are linked through electronic information systems
 Constant communication on quality and costs improvements can lead to
product and process innovation
 Investment policy: JIT contracts are signed for a long period of time and
guarantee a certain volume and turnover over that time period

14. 14
Disadvantages of JIT for a supplier
 It may result in a pyramid shaped structure with a strong hierarchy in the
different links of the supply chain.
 The large manufacturers at the top of the pyramid impose their demands
ruthlessly on the often smaller first tier suppliers
 It takes time (and money) to deliver at zero defects or to produce zero
defects.
 These investments come at the expense of the supplier
 Supplier can become very dependent on only one manufacturer.
 This can become a threat to its continuity.
Consequences for suppliers (2)

15. 5 PRINCIPLES
1. Identifying the value stream, this means track all processes that is involved
in the supply chain.
2. Create product flow, minimize delays, defects and downtime in order to
have as efficient flow as possible.
3. Specifying values, from the customer point of view value is added when it
has some kind of contribution to the final product
4. Pull scheduling, respond to customers order ( if possible).
5. Perfection, “big JIT” philosophy, improve all parts of the company