NPTEL Lecture Series

Management Science II
Dr.T.T.Narendran
MODULE 3
Historical Background
Inventory lot-sizing models Time-series forecasting Production Planning & Control Purchasing Sales & Distribution
All these functions have existed for a century !

THE TRANSITION (1970 1995) Inventory models came under attack (70s) Enter MRP MRP II ERP
And from Japan, JIT, TQM, Kaizen, etc.
What Happened Thereafter?

Need for better coordination /integration of functions Shorter time to manufacture Globalization Emergence of IT Led to the evolution of
Indian Institute of Technology Madras
Dr.T.T.Narendran
Evolution
What Is Supply Chain ?
Dr.T.T.Narendran
Or., Is It This ?
Suppliers
Plants
Distribution Centers
Warehouses
Customers
Supply Chain Management

Is a total systems approach to managing the entire flow of information, materials and services from raw material suppliers through factories, distribution centers and ware houses to the customer.
Dr.T.T.Narendran
Overview Of Supply Chain
Customers
Distributor s
Supplier
Factories/ Plants
Dr.T.T.Narendran
Supply /Inbound Logistics Production Distribution/Outbound logistics

SUPPLIERS
MANUFACTURERS
CUSTOMERS
THIRD PARTY LOGISTICS
DISTRIBUTORS/ WAREHOUSES
Information Flow Product Flow
Money Flow Services Flow
Supply Chain Types

External Supply Chain
Involving other companies.
Internal Supply Chain

Involving functions / departments /
business units within the organisation.
Dr.T.T.Narendran
Decisions
Temporal
Functional
Strategic Tactical Operational
Procurement Production Logistics
Scm Functional Decisions

1. Procurement (Purchasing) decisions
Supplier selection Sourcing / purchasing Vendor Managed Inventories
Objectives Of Purchasing
Provide uninterrupted flow of materials Buy competitively and wisely Minimize inventory holding costs
Dr.T.T.Narendran
Source development To develop good vendor relationships Achieve maximum integration with other departments Train purchase personnel To develop policies and procedures to achieve objectives (1-7)
Purchasing Must Provide Material Of
of the from the at the of the at the
Right Quality Right Source Right Price Right Quantity
Right time
Dr.T.T.Narendran
Right Quality
Involves many factors: Price, installation cost, maintenance cost, life expectancy, market availability, workability and attitude of users Must balance three major considerations How to determine ? How to define ? How to control ?
Describe such that vendor understands Engineering Versus Economic
Right Source
Influences the other 4 Rights Supplier goodwill Supplier identification (yellow pages), evaluation / rating and selection Buyer Seller relationships and ethics Factors to be considered include Quality, cost, delivery, credit terms distance etc In periods of stability, prosperity, recession
Dr.T.T.Narendran
Right Price
Perfect competition Imperfect competition Monopoly Analyze price lists Competitive bidding Negotiation Fixed price Cost type
Quantity, seasonal, cash
Methods Contracts Discounts
Right Quantity
Inventory Control traditional approach Material Requirement Planning (MRP) Just In Time (JIT) and Zero Inventory
Right Time
Timing Policies: Purchase according to current requirements (1 to 3 Months) Purchase according to market conditions
Dr.T.T.Narendran
Hand-to-mouth buying Forward buying (3 to 12 months) Speculative buying Depends on lead times Decides When to order JIT concepts

2. Production decisions
Process Design Manpower management Quality Inventory management Capacity planning and scheduling
Dr.T.T.Narendran
Production Decisions
QUALITY
MANPOWER MANAGEMENT
Managing quality Quality Control and Improvement

PROCESS DESIGN
Managing Workforce Job Design Performance Measurement

& Improvement
Process Selection Service Operations Design Choice of Technology Process Flow Analysis Layout of Facilities
INVENTORY MANAGEMENT
Independent Demand Materials Requirement Planning Just-in-time
CAPACITY PLANNING AND SCHEDULING
Forecasting Aggregate Planning Scheduling Operations Project Planning

3. Logistics decisions What is Logistics ?
Dr.T.T.Narendran

Logistics decisions Materials Management Decisions (Inbound) Sales forecasting Order processing Inbound transportation Physical Distribution Decisions (Outbound) Configuration of distribution facilities Location of facilities Mode of transport Vehicle routing
Dr.T.T.Narendran
Facility Structure Warehouses, Factories, Processing Centres, Distribution
Communications & IT Technology base, Trained manpower, Good

Components of Logistics
Transportation Rail, Truck, Air,
Centres,
Inventory Inventory turnover ratio, Obsolescence, Locked up capital, Uncertain lead
Warehousing & Packaging Housekeeping , Packaging costs,
Water and
times and
Physical Distribution Decisions

When to deliver the products Where to deliver the products How to deliver the products at a reasonable cost.
Dr.T.T.Narendran
P R O D U C E R
DISTRIBUTION
C O N S U M E R
TYPICAL CHANNELS OF DISTRIBUTION
ANUFACTURER GENT ETAILER
ONSUMER
Dr.T.T.Narendran
Physical Distribution Objectives Distribution Channel Functions
Physical distribution
Communication & transaction
Facilitating
Breaking Bulk
Storage
Physical Distribution: Vehicle Routing Decisions
Role Of Information Technology In Scm IOIS Inter-organizational Information System EDI: Electronic Data Interchange ERP: Enterprise Resource Planning
Dr.T.T.Narendran
Barcode System Identifying products, services, assets and locations throughout the world Data Mining and Warehouse (Database) Intranet ( within companies) Extranet (between partners) Internet (WWW World Wide Web) Decision Support System
Supply Chain Optimization

Optimization is used to improve a companys supply chain performance in variety of areas Lower Supply Co sts
Higher Profit Margins Increased Manufacturing Throughput Better Return on Assets
Dr.T.T.Narendran
Scope Of Supply Chain Modeling Three Levels Of Decision Hierarchy

Strategic
Location-allocation decisions Demand planning Distribution channel planning Strategic alliances
Outsourcing Supplier selection Information technology selection Pricing Network restructuring
Tactical
Operational
Inventory control Production / distribution coordination Order/freight consolidation Vehicle routing/scheduling Workforce scheduling
Material handling Equipment selection Layout design
Record keeping Packaging
Dr.T.T.Narendran
Modeling Approaches To Scm
Supply Chain Modeling
Deterministic
Stochastic
Hybrid
Heuristic
IT Driven
Simulation
Network Design
MIP Optimiza tion
Optim al Contro l
Dynamic Programmi ng
WMS
ERP
GIS
WMS Warehouse Management System ERP Enterprise Resource Planning GIS Geographic Information System
Dr.T.T.Narendran
Deterministic Models
Assumption: Model parameters are known with certainty.
(i) Network Models.

Determine location of production, stocking, and sourcing facilities, and channels through which the products flow.
(ii) Mixed-Integer Programming (MIP) Models.

Includes models for vehicle routing and scheduling, facility location and sizing, shipment routing and scheduling, freight consolidation and selection of the mode of transportation.
np-complete - not amenable to optimization.
Stochastic Programming
Some of the variables are not deterministic. Such models are appropriate
When data evolve over time and decisions need to be made prior to observing the entire data stream.
Dr.T.T.Narendran
Robust Optimization Models

Uncertainty about problem data is treated as unknown-but-bounded. Intervals of confidence for the data are considered.
Heuristic Models
Intelligent approach that attempts to find good solutions. Empirical approached problem solving Thumb Rule Quick and Effective No guarantee of optimum Adequate for real life
Simulation Models
Both strategic & operational elements. Evaluate alternative policies or decisions. Dynamic nature of supply chains.
Hybrid Models
Both deterministic & stochastic models. Inventory-theoretic & simulation models. Deal with both certainty and uncertainty.
Dr.T.T.Narendran
Hybrid Models
Both deterministic & stochastic models. Inventory-theoretic & simulation models. Deal with both certainty and uncertainty.
It Driven Models
Warehouse management system (WMS) Transportation management systems (TMS) Integrated transportation tracking, Collaborative planning and forecasting replenishment (CPFR), Material requirement planning (MRP), Distribution resource planning (DRP), Enterprise resource planning (ERP), and Geographic information systems (GIS).
Dr.T.T.Narendran
MODELS FOR VEHICLE ROUTING
Neural Network
Ant Colony
Particle Swarm
Lagrangean Relaxation
Dynamic Programming
Branch & Bound
Tabu Search
Simulated Annealing
Genetic Algorithms
Savings Procedure
Mathematical Programming
Preference Based Approach
Intuitive Based Approach
Simulation Based Approach
Improvement (2-opt, 3-opt)
Insertion Procedure
Cluster-First Route-Second
Route-First, Cluster-Second
Graphics Capability
Requirements For Effective Scm

Information Handling
Lightness of data transferring only essential information (not GIGO !) Transparency and speed of information
Dr.T.T.Narendran
Accurate Timely access Defining the right amount of information for each level
Information Handling (Contd.)
Information to right people
To ensure that information reached the recipi
ent To prevent and control data seepage
Dr.T.T.Narendran
Dr.T.T.Narendran
Implementation
Co-operation, not Competition : Focus on jointly solving problems, not looking for someone to blame.
Dr.T.T.Narendran
It Difficulty
Dr.T.T.Narendran
On the Internet, nobody knows youre a dog

Trade-off between Accessibility and Security
Dr.T.T.Narendran
Scm Overall Drawbacks
Problem
Solution
Benefits
Possible Drawbacks
Large inventories
Smaller, more frequent deliveries
Reduced holding costs
Traffic congestion Other costs
Long lead times to manufacture, to procure
Delayed differentiation No transfer of load (point to point)
Quick response
May not be feasible Lack of functional integration
Large number of parts
Modular
Fewer parts Simpler ordering
Less variety
Quality cost
Outsourcing
Reduced cost, higher quality
Loss of control
Variation in demand, MPS, etc.
Shorter lead times, better forecasts
Able to match supply and demand
Less variety
The Future Of Scm

Soft issues Multi-objective formulations Dynamic decision rules
Dr.T.T.Narendran
Design of model-based Decision Support System

Shall we dream of an IT-driven, Customer-friendly, People-sensitive Supply Chain Management System ? WHERE DOES SCM STAND TODAY ? Fragmented ! Production managers don't know enough IT
IT professionals don't know enough Operations Management
Dr.T.T.Narendran
Filename: CHAPTER 6 Directory: C:\Documents and Settings\User 1\Desktop\5 Template: C:\Documents and Settings\User 1\Application Data\Microsoft\Templates\Normal.dot Title: CONTENTS Subject: Author: User 1 Keywords: Comments: Creation Date: 6/29/2006 10:57:00 AM Change Number: 18 Last Saved On: 7/21/2006 4:30:00 PM Last Saved By: User 1 Total Editing Time: 233 Minutes Last Printed On: 9/21/2006 11:56:00 AM As of Last Complete Printing Number of Pages: 29 Number of Words: 1,293 (approx.) Number of Characters: 7,373 (approx.)

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Management Science II

All these functions have existed for a century !

And from Japan, JIT, TQM, Kaizen, etc.

What Happened Thereafter?

Indian Institute of Technology Madras

What Is Supply Chain ?

Indian Institute of Technology Madras

Supply Chain Management

Indian Institute of Technology Madras

Overview Of Supply Chain

Indian Institute of Technology Madras

Supply /Inbound Logistics Production Distribution/Outbound logistics

THIRD PARTY LOGISTICS

Information Flow Product Flow

Money Flow Services Flow

Supply Chain Types

Internal Supply Chain

business units within the organisation.

Indian Institute of Technology Madras

Strategic Tactical Operational

Procurement Production Logistics

Scm Functional Decisions

Indian Institute of Technology Madras

Purchasing Must Provide Material Of

of the from the at the of the at the

Right Quality Right Source Right Price Right Quantity

Indian Institute of Technology Madras

Describe such that vendor understands Engineering Versus Economic

Indian Institute of Technology Madras

Quantity, seasonal, cash

Methods Contracts Discounts

Indian Institute of Technology Madras

Scm Functional Decisions

Indian Institute of Technology Madras

Managing quality Quality Control and Improvement

Managing Workforce Job Design Performance Measurement

Independent Demand Materials Requirement Planning Just-in-time

CAPACITY PLANNING AND SCHEDULING

Forecasting Aggregate Planning Scheduling Operations Project Planning

Scm Functional Decisions

Indian Institute of Technology Madras

Scm Functional Decisions

Indian Institute of Technology Madras

Facility Structure Warehouses, Factories, Processing Centres, Distribution

Communications & IT Technology base, Trained manpower, Good

Inventory Inventory turnover ratio, Obsolescence, Locked up capital, Uncertain lead

Warehousing & Packaging Housekeeping , Packaging costs,

Physical Distribution Decisions

Indian Institute of Technology Madras

TYPICAL CHANNELS OF DISTRIBUTION

ANUFACTURER GENT ETAILER

Indian Institute of Technology Madras

Physical Distribution Objectives Distribution Channel Functions

Communication & transaction

Indian Institute of Technology Madras

Supply Chain Optimization

Higher Profit Margins Increased Manufacturing Throughput Better Return on Assets

Indian Institute of Technology Madras

Scope Of Supply Chain Modeling Three Levels Of Decision Hierarchy

Outsourcing Supplier selection Information technology selection Pricing Network restructuring

Material handling Equipment selection Layout design

Record keeping Packaging

Indian Institute of Technology Madras