supply chain modeling

8/3/2019 Supply Chain Modeling

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Supply chain modeling

SUPPLY CHAIN OPTIMIZATION

Supply chain optimization is the application of processes and tools to ensure the optimal

operation of a manufacturing and distribution supply chain.

This includes the optimal placement of inventory within the supply chain, minimizing operating

costs (including manufacturing costs, transportation costs, and distribution costs).

This often involves the application of mathematical modelling techniques using computer

software

supply chain managers are trying to maximize the profitable operation of their

manufacturing and distribution supply chain. This could include measures like:

maximizing gross margin return

, minimizing total operating expenses

maximizing gross profit of products distributed through the supply chain.

Supply chain optimization addresses the general supply chain problem of

delivering products to customers at the lowest total cost and highest profit.

Supply chain optimization has applications in all industries manufacturing and/or

distributing goods, including retail, industrial products, and consumer packaged goods

(CPG).

Linear programming (LP, or linear optimization) is a mathematical method for

determining a way to achieve the best outcome (such as maximum profit or lowest cost)

in a given mathematical model for some list of requirements represented as linear

relationships.

http://en.wikipedia.org/wiki/Supply_chain



http://en.wikipedia.org/wiki/Inventory



http://en.wikipedia.org/wiki/Mathematical_modelling



http://en.wikipedia.org/wiki/Retail



http://en.wikipedia.org/wiki/Mathematical_model










Linear programming can be applied to various fields of study. It is used most extensively

in business and economics, but can also be utilized for some engineering problems.

Industries that use linear programming models include

transportation,

energy,

telecommunications,

manufacturing

. It has proved useful in modeling diverse types of problems in planning, routing,

scheduling, assignment, and design

Uses

Likewise, linear programming is heavily used in microeconomics and company

management, such as planning, production, transportation, technology and other

issues.

Although the modern management issues are ever-changing, most companies would

like to maximize profits or minimize costs with limited resources. Therefore, many

issues can be characterized as linear programming problems.

http://en.wikipedia.org/wiki/Assignment_problem



http://en.wikipedia.org/wiki/Microeconomics







RFID TECHNOLOGY

NEED FOR RFID

1) Error free work.

2) Improves the efficiency of work

3) Need of rfid increases when volume of the business is increased

4) Tracking becomes possible

5) Retail sector is using for theft control in retail outlets

6) RFID helps in reducing paper works

radio-frequency identification (RFID) is a technology that uses radio waves to transfer data

from an electronic tag, called RFID tag or label, attached to an object, through a reader for the

purpose of identifying and tracking the object.

Some RFID tags can be read from several meters away and beyond the line of sight of the

reader. The application of bulk reading enables an almost-parallel reading of tags.

http://en.wikipedia.org/wiki/Technology



http://en.wikipedia.org/wiki/Radio_waves



http://en.wikipedia.org/wiki/Bulk_reading








APPLICATION OF RFID

Manufacturing and Processing

Inventory and production process monitoring

Warehouse order fulfillment

Supply Chain Management

Inventory tracking systems

Logistics management

Retail

Inventory control and customer insight

Auto checkout with reverse logistics

Security

Access control

Counterfeiting and Theft control/prevention

Location Tracking

Traffic movement control and parking management

Wildlife/Livestock monitoring and tracking

RFID advantages over bar-codes

No line of sight required for reading

Multiple items can be read with a single scan

Each tag can carry a lot of data (read/write)



Individual items identified and not just the category

Passive tags have a virtually unlimited lifetime

Active tags can be read from great distances

DRIVERS OF SUPPLY CHAIN

LOGISTIC DRIVERS

1) Facilities

places where inventory is stored, assembled, or fabricated

production sites and storage sites

2) Inventory

raw materials, WIP, finished goods within a supply chain

inventory policies

3) Transportation

moving inventory from point to point in a supply chain

combinations of transportation modes and routes



CROSS FUNCTIONAL DRIVERS

4) Information

data and analysis regarding inventory, transportation, facilities

throughout the supply chain

potentially the biggest driver of supply chain performance

5) Sourcing

functions a firm performs and functions that are outsourced

6) Pricing

Price associated with goods and services provided by a firm to

the supply chain



1) FACILITIES

Components of facilities decisions

a) Location

centralization vs. decentralization

b) Capacity

c) Manufacturing methodology (product focused versus

process focused)

d) Warehousing methodology (SKU storage, job lot storage,

cross-docking)

2) Inventory

COMPONENTS OF INVENTORY

Cycle inventory

Average amount of inventory used to satisfy demand between

shipments

Depends on lot size



Safety inventory

inventory held in case demand exceeds expectations

costs of carrying too much inventory versus cost of losing sales

Seasonal inventory

inventory built up to counter predictable variability in demand

cost of carrying additional inventory versus cost of flexible

production

Overall trade-off: Responsiveness versus efficiency

more inventory: greater responsiveness but greater cost

less inventory: lower cost but lower responsiveness

3) TRANSPORTATION

Components of transportation

u Mode of transportation:

u Route and network selection



4) Information

Push (MRP) versus pull (demand information transmitted

quickly throughout the supply chain)

Coordination and information sharing

Forecasting and aggregate planning

Enabling technologies

5) Sourcing

Components of sourcing

In-house versus outsource decisions

Supplier evaluation and selection

Procurement process

6) Pricing

Components of pricing

Pricing and economies of scaleEveryday low pricing versus high-low pricing

Fixed price versus menu pricing



MATERIAL REQUIREMENT PLANNING

Material requirements planning (MRP) is a production planning and inventory control

system used to manage manufacturing processes. Most MRP systems are software-

based, while it is possible to conduct MRP by hand as well.

An MRP system is intended to simultaneously meet three objectives:

Ensure materials are available for production and products are available

for delivery to customers.

Maintain the lowest possible material and product levels in store

Plan manufacturing activities, delivery schedules and purchasing activities

The scope of MRP in manufacturing

The basic function of MRP system includes inventory control, bill of material processing and

elementary scheduling. MRP helps organizations to maintain low inventory levels. It is used to plan

manufacturing, purchasing and delivering activities.

"Manufacturing organizations, whatever their products, face the same daily practical problem - that

customers want products to be available in a shorter time than it takes to make them. This means

that some level of planning is required

. Making a bad decision in any of these areas will make the company lose money. A few examples

are given below:

If a company purchases insufficient quantities of an item used in manufacturing (or the wrong

item) it may be unable to meet contract obligations to supply products on time.

If a company purchases excessive quantities of an item, money is wasted - the excess quantity

ties up cash while it remains as stock and may never even be used at all.

Beginning production of an order at the wrong time can cause customer deadlines to be missed.

MRP is a tool to deal with these problems. It provides answers for several questions:

What items are required?

How many are required?

When are they required


http://en.wikipedia.org/wiki/Management

http://en.wikipedia.org/wiki/Manufacturing

http://en.wikipedia.org/wiki/Computer_software

http://en.wikipedia.org/wiki/Material


http://en.wikipedia.org/wiki/Product_(business)

http://en.wikipedia.org/wiki/Delivery_(commerce)

http://en.wikipedia.org/wiki/Bill_of_material




http://en.wikipedia.org/wiki/Delivery_(commerce)

http://en.wikipedia.org/wiki/Product_(business)


http://en.wikipedia.org/wiki/Material

http://en.wikipedia.org/wiki/Computer_software


http://en.wikipedia.org/wiki/Management




MANUFACTURING RESOURCE PLANNING

Manufacturing resource planning (MRP II) is defined by APICS as a method for the effective

planning of all resources of a manufacturing company

BASIC FUNCTION OF MRP 2

Master production schedule (MPS)

Bill of materials (BOM) (technical data)

Production resources data (manufacturing technical data)

Inventories and orders (inventory control)

Purchasing management

Material requirements planning (MRP)

Capacity planning or capacity requirements planning (CRP) Standard costing (cost control)

BENEFITS OF MRP 2 ARE

MRP II systems can provide:

Better control of inventories

Improved scheduling

Productive relationships with supplier

Improved design control

Better quality and quality control

Reduced working capital for inventory

Improved cash flow through quicker deliveries

Accurate inventory records

http://en.wikipedia.org/wiki/APICS



http://en.wikipedia.org/wiki/Master_production_schedule


http://en.wikipedia.org/wiki/Bill_of_materials


http://en.wikipedia.org/wiki/Purchasing_management


http://en.wikipedia.org/wiki/Material_requirements_planning


http://en.wikipedia.org/wiki/Capacity_planning


http://en.wikipedia.org/wiki/Working_capital












Collaborative planning and replenishment Forecasting

Collaborative Planning, Forecasting and Replenishment (CPFR) is a concept that aims to

enhance supply chain integration by supporting and assisting joint practices. CPFR seeks

cooperative management of inventory through joint visibility and replenishment of productsthroughout the supply chain. Information shared between suppliers and retailers aids in planning

and satisfying customer demands through a supportive system of shared information. This

allows for continuous updating of inventory and upcoming requirements, making the end-to-end

supply chain process more efficient. Efficiency is created through the decrease expenditures for

merchandising, inventory, logistics, and transportation across all trading partners.

9 STEPS OF CPRF

Step1. Develop Front-End Agreement: Roles, Measurement,Readiness

Step2. Create Joint Business Plan: Strategies and Tactics

Step3. Create Sales Forecasts: Buyer and supplier both createcustomer-demand forecasts

Step4. Identify Exceptions in Sales Forecasts

Step 5. Resolve Exceptions: Agree on single forecast or agree todisagree







Step 6. Create Order Forecasts: Buyer and Supplier both createplans for buyer orders.

Step 7. Identify Exceptions in Order Forecasts

Step 8. Resolve Exceptions: Agree on single plan for buyerorders

Step 9. Order Generation

BENEFITS OF CPRF SYSTEM

Increased inventory turns (i.e, lower buffer inventory)

Increased fill-rate for the SKU’s involved

Higher levels of customer service

CPFR also implemented in B2B exchanges such asWorldwide Retail Net



CHALLENGES FACED BY CPFR SYSTEM

Buyer and supplier must develop trust that each will treat theother fairly and honestly.

Pre requisites to do that incentives to do so.

Conflicts with contractors

At technical level, buyers and suppliers must develop a commonlanguage for identifying products and making decisions aboutthem.

System must be developed for linking the buyers and suppliersbusiness processes.

This will involve system challenges and Training.

Security level protocols must be implemented that will safeguardboth partners form leaks of proprietary information.

supply chain modeling

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