Supply Chain Management
Supply Chain Management
Supply Chain Management
Session Objectives
To understand the role of Supply Chain Management in Manufacturing and Service Organisations To critique the impact of Supply Chain in gaining competitive advantage To assimilate the legal framework and negotiation tactics in cross cross-border border transactions
Session Outline
History Hi t of f logistics l i ti and d Supply S l Chain Ch i Management M t (SCM) Objectives of SCM Ch ll Challenges and d opportunities i i in i Machine M hi Tool T l industry i d supply chain Kraljics matri matrix Cross-border negotiation L lf Legal framework ki in cross b border d negotiation ti ti
Gulf war in 1991: Half a million people and half a million tones o es o of equ equipment p e had ad to o be a airlifted ed 12,000 ,000 km w with a further u e 2.3 million tones of equipment moved by sea- all in impossible time frames.
SCM : Schematic
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A business process
Cost Timeliness Performance Product Interface
P d Products Automation 11
Value created and added by outside firm providing Logistics M.S Ramaiah School of Advanced Studies - Bangalore
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SUPPLY CHAIN
Customer
Enterprise Processes
Supplier
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One Variant 6,200 Distinct Parts Imported from 17 Countries From 240 Suppliers Assembled in 1 Plant Within few minutes Exported to 34 Countries Same day Without becoming inventory!
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Value Chain
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Cost
Quality
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P l People
Technology
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2010 Onwards
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Aston Martin
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Riding Solo, Honda Shifts to Top Gear on 22 wheelers Company p y to focus f on new models, , expand p dealer network
Mr S Shinji j Aoyama oy
Source: Business Line, 5 January 2011
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We have combined the leading edge technology of Nissan with ith A Ashok h kL Leyland l d Li Limited's it d' d delivery li capability bilit to t complete l t the th project j t in i a cost t effective ff ti manner". "
Nissan Motor senior vice President and the JV chairman Dr. Andy y Palmer
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Some Examples
You ou ge get Dell e laptop p op in 10 0d days ys after e o ordering. de g. They ey in turn u order all parts to their vendors only after you order. Incidentally the beautiful consignment reaches your doorsteps. Seven KMs above ground level, on a London bound flight from Bangalore at 7 am, when Thames is almost in sight, you get Vada Sambar, Sambar very tasty, tasty more or less so at least. least Sitting in Bangalore, Bangalore through internet you book a 2nd class ticket from Varanasi to Pratabgarh ten days before. The ticket is delivered to your e-mail ID.
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The primary drivers drivers for achieving strategic fit in Supply Chain Strategy (adapted from Chopra & Meindl)
Corporate Strategy
Facilities
Inventory y
Transportation p
Information
Market S Segmentation t ti 33
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Objectives of SCM
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Supply Chain
Organisations must embrace technologies that can effectively ff i l manage and d oversee their h i supply l chains h i
Distribution or disposal
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Benefits of SCM
Inventory I t reduction d ti Productivity Improvement P Personnel l reduction d ti Cost reduction High customer satisfaction Increased profit On time delivery fulfillment On-time Revenue/profit increase Better cash management Better order management
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SCM : Activities
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In 1999 ToysRUS had problems supplying to holiday shoppers & lost business.
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POOR COORDINATION
With Internal units and business partners Ineffective customer service High inventory costs, loss of revenue & extra cost for expediting services. i
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Suppliers
Producers
Retailers
Retailers
Cash Flow
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Shrinking Uncertainty in SC
Source:
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Buyer-Supplier Relationship
Exit Exit Voice Loyalty Loyalty
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A Case
Bharat Fritz Werner Ltd. was able to develop p and deliver, a complex nine-axis CNC multitasking machine for machining rear axle housings of commercial vehicles in a single set t up
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SMEs should focus on information flow and mutual t l understanding d t di among the th members b of supply chain
Source: Rajesh K. K Singh Indian Institute of Foreign Trade (IIFT), New Delhi, Business Process Management g Journal, , Vol. 17 No. 4, , 2011,pp. ,pp 619-638
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Consumer: An orientation toward the needs of the consumer Efficient Response: A process optimisation of the supply chain oriented
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Wal-Mart, , Warner-Lambert SAP H Hyundai d i VAATZ C Concept Open Standards,Broad Requirements & S t Systematic ti Integration I t ti
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1. 2
Government
Vendor
Characteristics:
Limited visibility of future demand requirements Both partners forecast independently Outages cause adversarial relationships
Inventories to buffer against unexpected demand
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POST CPFR
Government
Collaborative Arrangement
Retailer Sales Forecast 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2,559 2,993 3,656 9,208 3,848 3,400 3,724 3,016 13,988
Order
Order
Order
361 361 0
Characteristics:
Dual insights provide a better forecast demand Long term view of demand requirements partners j jointly y forecast Both p Earlier visibility of issues through the exceptions Monitor POS data via the private exchange/web portal; p ; compare p to forecast Focus of relationship becomes win-win M.S Ramaiah School of Advanced Studies - Bangalore
Vendor
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Summary y
In order to smoothen the supply pp y chain bull whip, p , we need accurate visibility of demands: CPFR is an industry standard guideline for collaboration Collaboration requires q trust Collaboration is a transformational strategy Roles and responsibilities can change Collaboration facilitates long-term B2B relationships Collaborative C ll b ti partnerships t hi must tb be win i / win i Collaborative benefits can be huge!
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Global Supply Chains = Supply chains that involve suppliers and/or customers in other countries.
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Business Culture
Western Perfectionist Engineer Planning g Facts matter p Mauls for non-compliance Single task at a time Indian Functionalist Businessman Improvisation p People matter Bonus for success Multi-task at a time
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Kraljics Matrix
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Kraljics Matrix
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TYPES OF SUPPLIERS
TECHNOLOGY MACHINERY/CAPITAL EQUIPMENT RAW MATERIAL COMPONENTS FINISHED PRODUCTS
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ISSUES IN NEGOTIATION
CULTURE EXCHANGE RATE DEGREE OF TRANSPARENCY REQUIRED OUR MINDSET/ OUR MANAGEMENTS MINDSET
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Supplier Strategies
Pl Plans to t h help l achieve hi company mission i i Affect long-term competitive position Strategic options
Many y suppliers pp Few suppliers Keiretsu network Vertical integration Virtual V tua company co pa y
Pl Plan
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Suggestion
Use passenger car door locks on trucks Simplify design/substitute materials on manual window system Change tooling for woodgrain panels to allow three from one die Change wiper-blade formulation Exterior lighting suggestions
Model
Dodge trucks Various
Savings
$280,000 $300,000
3M
$1,500,000
Trico
$140,000
Various
$1,500,000
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Ask for JIT delivery from key y suppliers pp Involve key suppliers in new product design Develop software linkages to suppliers li
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Steel
Flour Milling
Automobiles
Integrated Circuits
Distribution System
Dealers
Baked Goods
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Lowers need for short-term profits pp distributors, & Links manufacturers, suppliers, lenders
Partnerships p extend across entire supply pp y chain
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Category 2
II round Takes 10-12 months Court of last resort I round Takes 6 months
Category 3
High Court
District/Province/Civil Court
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Category 3
Special Jurisdiction
Headed by professionals not t judges j d Three member committee Two Industry Veterans and one retired j judge g
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Points to Remember
C Contract t t dispute di t b between t any t two companies i cannot t violate i l t the Country law Law to be referred has to be mentioned in the contract Ex: Bombay court may look into Hongkong/Singapore laws to deal with broadcasting rights Choice of Forum Depending on the issue Choice of Law Decided by Parties
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Regulators
Example:
TRAI SEBI AAI etc.
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What is Negotiation? g It is the art of creating agreement on a specific issue between two (or more) parties with 4 differing views (Win/Loose, Win/Win, Loose/Loose, Loose/Win) imparting or conveying ideas, views or information from the mind of one person to the mind of the other. What is Purchasing? The activity of acquiring goods or services to accomplish the goals of an organisation. What is Purchasing Negotiation? A process in a finite number of steps consisting mainly of alternate proposals and counter-proposals or a form of cooperation with both common and opposed interests with two or more parties.
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Role Play
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Session Summary
Meaning and definition of Supply Chain Management has been explained. Special cases with respect to advantages of SCM has been discussed. Current trends of Supply Chain and its impact have b been elucidated. l id d
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Day-2
Session Objectives
To ascertain the key factors to optimise logistics process To assimilate the factors to be considered for Make or Buy decisions To match supply chain strategies with products
Session Outline
Logistics strategies Make or Buy Factors to be considered Span of Process Push vs. Pull Scheduling Hybrid approach for supply chain
Manufacturing Logistics
Logistics - Science of managing (controlling) the movement and storage of goods (or people) from acquisition to consumption. Goods: Raw Materials Final products, and everything in between.
Movement Storage
NOTE: Logistics does not deal with Technology of Production, such as the design of machines, vehicles and the design of finished products.
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Promotion Decisions Production Capacity Decisions Production Scheduling Decisions Shop Floor Decisions
Engineering Systems
Logistics Systems
Marketing Systems
Inventory Decisions
Transportation Decisions
Sourcing Decisions
Manufacturing Systems
Customer Service
determining customer wants determining customer response to service changes
Inventories
finished goods policies supply scheduling short term forecasting
Materials Handling
equipment selection equipment replacement order picking procedures
Warehousing
private vs. public space determination warehouse configuration Stock layout and dock design stock placement Cross-docking
Facility Location
determining location, number and size of facilities allocating demand t o facilities
Manufacturing Logistics
Physical Distribution
Recycling/ Returns/ Waste Disposal Location Communication
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MANUFACTURING PROCESSES
INBOUND LOGISTICS
OUTBOUND LOGISTICS
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Reverse Logistics
To manage the flow & Storage of products and services, moving backwards through the supply chain Supply chains create waste due to packing New development in SCM includes the recycling of products and packing materials, disassembly of products for reuse, product returns for warranty claims
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Freight Operating Information system will enable traders to monitor arrival of the freight train, plan out the receipt and dispatch of consignments to the intended locations, besides providing adequate time to arrange for labour.
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Importance of Logistics
Essential & Expensive - ( GDP ) 10 to 13% in India 8% in USA Bigger than the profit margin on goods Affects Financial Performance
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Source: Joint Study by DHL and Organisation of Pharmaceutical Producers of India , October 2011
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BUSINESS STRATEGY
LOGISTICS STRATEGY
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Volvo-Case
Multi Axle Transport Solution
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Benefits
Equivalent to 5 : 2-Axle trucks Higher Average speed Less Breakdowns Transportation cost saving of 20-40% to Fleet owners Takes 16 m road space but the latter take 90 m Cut in fuel consumption by 50% Environmental safety
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Consolidation
Smaller Operators are shrinking Large players are outsourcing Shift towards bagging quality orders Warehousing etc.
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Conclusion
Big is Better
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COST TOTAL COST MAKE MAKE-FIXED COST MAKE-VARIABLE COST BREAK -EVEN VOLUME
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Span of Process
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Make-or-Buy Decisions
Reasons for Making
1. 2. 3. 4. 5. 6. 7. 8. Maintain core competence Lower production cost Unsuitable suppliers Assure adequate supply (quantity or delivery) Utilize surplus labor or facilities Obtain desired quality Remove supplier collusion Obtain unique item that would entail a prohibitive commitment for a supplier 9. Protect personnel from a layoff 10. Protect proprietary design or quality 11. Increase or maintain size of company
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Make-or-Buy Decisions
Reasons for Buying
Frees management to deal with its core competence 2. Lower acquisition cost 3. Preserve supplier commitment 4. Obtain technical or management ability 5. Inadequate capacity 6. Reduce inventory costs 7. Ensure alternative sources 8. Inadequate managerial or technical resources 9. Reciprocity 10. Item is protected by a patent or trade secret
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Make/Buy Decisions
Product Dependent on Independent Independent knowledge of knowledge, of knowledge and capacity Dependent on and capacity capacity Outsourcing is Outsourcing is Opportunity to risky an opportunity reduce cost through outsourcing Outsourcing is Outsourcing is Keep very risky an option production internal
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Modular
Integral
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Coordinating activities across the supply chain Improve performance through cost reduction, increasing service level, reducing the bullwhip effect, better utilising resources, and effectively responding to changes
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Comparison
These methods offer two completely different approaches to basic production planning Each has advantages over the ot her, but neither seems to be sufficient on its own. Both have advantages and disadvantages, suggesting that both methods could be useful in the same organisation.
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Pull Scheduling
- Coordinated Production - Driven by Demand( Pulled thru system ) - Extensive use of visual triggers
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Demand Pull
Customer D1 D2 D3 D4
RDC2
Finished products
Finished products
Factory Warehouse
WIP
Sub Assemblies
Product Push
Vendors/Suppliers
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Components
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Make a part of the product to stock generic product The point where differentiation has to be introduced is the push-pull boundary Based on extent of customisation, the position of boundary on the timeline is decided
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GMs Case
Failure of Make to Order Strategy
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Pull
Maximize Service Level Low Responsiveness Short Order Fulfillment
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Longer the lead time, more important it is to implement a push based strategy. Typically difficult to implement a pull strategy when lead times are so long that it is hard to react to demand information.
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Cases
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Grocery Industry
Typical supermarket employs a push-based strategy Peapod was built on pure pull strategy with no inventory and no facilities.
Significant service problems with high stock-out rates Changed to a pushpull strategy by setting up a number of warehouses Warehouse covers a large geographical area
Aggregated demand
Other challenges:
Reducing transportation costs Short response time Low customer density
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Book Industry
Initial model of Amazon.com a pure pull system with no warehouses and no stock.
Ingram Book Group supplied most of Amazons customer demand.
Current Amazon.com:
Several warehouses around the country where most of the titles are stocked. Inventory at the warehouses is managed using a push strategy Demand satisfied based on individual requests, a pull strategy.
Slow moving low volume books and CDs are not stocked at Amazon distribution centers
Amazon orders those when demand arrives.
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Session Summary
Meaning of Logistics, components of Logistics management have been explained. Factors influencing the make or buy decision has been elucidated. Cases with respect to Push-Pull supply chain have been discussed.
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Day-2
Session Objectives
To identify the role of aggregate planning in supply chain to manage supply and demand To examine the key factors to be considered when designing a distribution network To apply optimisation techniques to evaluate trading partners
Session Outline
Introduction to SC modelling Managing supply through Aggregate planning Gravity Model Supply Chain Benchmarking Data Envelopment Analysis
Descriptive Method
Forecasting Models - predict demand for companys finished products, cost of raw materials etc. Cost Relationship -describes how direct and indirect costs vary Resource Utilisation -how manufacturing activities consume scarce resources Simulation Models -describes parts or all the companys supply chain that will operate over time as function of parameters and policies
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The primary drivers for achieving strategic fit in Supply Chain Strategy (adapted from Chopra & Meindl)
Corporate Strategy
Facilities
Inventory
Transportation
Information
Market Segmentation 9
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Definition of LPP
Linear Programming (LP) is a versatile technique for assigning a fixed amount of resources among competing factors. A mathematical technique used to obtain an optimal solution in resource allocation problems, such as production planning, scheduling, advertising, cost analysis etc. It is basically used for efficient and effective utilisation of limited resources to achieve organization objectives (Maximise profits or Minimise cost).
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xa + xa +. + xa // = b
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Model
M2
X 4X 2X 300 X
Y 2Y 5Y 400 Y
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(cont..d)
Objective Function
Constraints
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Formulation of LPP
Case: 2 A firm produces two home products viz. model A
and model B. The production involves three operationsassembly, painting and testing. The relevant data are as follows: Hours required for each unit Unit selling price Model A Rs.40 Model B Rs.60 Assembly 10 18 Painting 2 5 Testing 1 2
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Case-2
Formulation of LPP
(Contd)
Total number of hours available each week are as follows: Assembly 400 Painting 100 Testing 60 The firm wishes to determine its weekly product mix so as to maximize profit. Formulate the problem as a linear programming problem(LPP).
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Case-2
Formulation of LPP
(Contd)
Solution: Let X: Number of units of model A to be produced. Y: Number of units of model B to be produced. Model A Number of units Assembly time(hrs.) Painting time(hrs.) Testing time (hrs.) Profit (Rs) X 10 X 2X 1X 40 X Model B Y 18 Y 5Y 2Y 60 Y Requirement
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Case- 2
Conversion to LPP
(cont..d)
Maximize Z = 40X + 60Y Subject to (S.t) 10X +18Y < 400 2 X + 5Y < 100 1X + 2 Y < 60 and X > 0, Y > 0
Objective Function
Constraints
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Capacity of the plant is determined by total labour hours worked. As per labour rules, no employee works more than 10 hrs overtime per month. SC manager goal is to have 500 units at the end of june as inventory. Minimising cost over the planning horizon is equal to maximising profit as all demand has to be met.
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Cost
$10/unit $2/unit/month $5/unit/month $300/worker $500/worker 4/unit $4/hour $6/hour $30/unit
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Decision Variables
Wt = Workforce size for month t Ht = number of employees hired at the beginning of month t Lt = number of employees laid off at the beginning of month t Pt = number of units produced in month t It = Inventory at the end of month t St = number of units stocked out/backlogged at the end of month t Ct = number of units sub-contracted at the end of month t Ot = number of overtime hours worked in month t where t = 1, 2, ........ , 6
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Formulae
Cell M5
(Wt Constraints)
N5
(Capacity
Constraints)
= 40*D5+E5/4-I5
O5
(Inventory Constraints)
= F4-G4+I5+H5-J5F5+G5 = -E5 + 10 * D5
P5
(Over-time Constraints)
Ot 10 W t
Here, M5 = 0; N5 0; O5 = 0; P5 0
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[640W
6 i =1
+ 6 ot + 300 H t + 500 Lt + 2 I t + 5 S t + 10 Pt + 30 C t
We need to arrive at minimised solution
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Solver Steps
Set Target Cell: C22, Equal to : Select Min By Changing Cells : B5 : I10 Subject to Constraints B5 : I10 0 (All decision variables are non -negative) F10 500 ( Inventory at end of period 6 is at least 500) G10 = 0 (Stock-out at the end of 6 months equals 0) M5 : M10 = 0 (workforce constraints) N5 : N10 0 (capacity constraints) O5 : O10 = 0 (inventory constraints) P5 : P10 0 (over-time constraints)
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Final Solution
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Gravity Model
This model assumes that both markets and supply sources can be located as grid points on plane. All distances are calculated as the geometric distance between two points on the plane. Assumes transportation cost linearly grows with quantity shipped.
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Input Parameters
xn, yn : coordinate location of either a market or supply source n Fn: Cost of shipping one unit for one mile between facility and either market or supply source n Dn: Quantity to be shipped between facility and market or supply source n If (x,y) is the location selected for the facility, the distance dn between the facility at location (x,y) and the supply source or market n is given by:
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Formulae
(x
x)
n
k
+ y
) y
2 n
TC = d n D n F n
n =1
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Equations
Cell Cell formula Equation Copied to
G5:G12
G5
=SQRT($B$16-E5)^2+($B$17-F5)^2
B19
=SUMPRODUCT(G5:G12,D5:D12, C5:C12)
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Results
The coordinates (x, y) = ( 681, 882) has been identified as the location of the new factory which minimises the total transportation cost. From the map, these coordinates are close to the border of North Carolina and Virginia. The manager should look for desirable sites close to optimal coordinates that have the required infrastructure and appropriate worker skills.
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Contd.
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Methodology
- Identification of input (X) and output (Y) variables of DMUs for performance evaluation through DEA. - In general, radial efficiency () measure takes the form of ratio
=
-
Output Input
Considering all m inputs and s outputs portraying total factor productivity measure of a DMU, the unknown variable weights will be represented as vi and ur
Virtual Input = v1x1o + ............... + vmxmo Virtual Output = u1y1o + ............... + usyso - Finally the linear programming technique will be used to maximise the ratio and to determine weights individually
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Where, is the non-negative Column Vector of Variables is radial efficiency X is Input vector and Y is Output vector xo, yo is DMU under study
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Example
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Mathematical Formulation
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Optimal Solution
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Reference Set
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Consolidated Results
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Graphical Representation
X $ 1,00,000
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Demo Session
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References
1. Chien-Ming Chen, Evaluation and Design of Supply Chain Operations using DEA, Ph.D. Thesis, Erasmus University Rotterdam, 2009. 2. William W. Cooper, Lawrence M. Seiford, Kaoru Tone, Introduction to Data Envelopment Analysis and Its Uses, Springer, 2006. 3. William W. Cooper, Lawrence M. Seiford, Kaoru Tone, Data Envelopment Analysis, 2nd edition, Springer, 2007.
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Session Summary
Strategies adapted in aggregate planning with trade-offs has been elucidated. Facility location model in the form of gravity model has been applied. DEA models to evaluate the trading partners has been demonstrated.
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