Network and System Design 3 1 Lecture Outline 3 2 The Supply Chain System Understanding Processes Theory of Constraints TOC Integration of Supply Chain Processes Designing Supply Chain Networks ID: 624880
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Chapter 3
Network and System Design
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Lecture Outline
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The Supply Chain System
Understanding Processes: Theory of Constraints (TOC)
Integration of Supply Chain Processes
Designing Supply Chain NetworksEnterprise Resource Planning (ERP)
Copyright 2011 John Wiley & Sons, Inc.Slide3
The Supply Chain System
3-3A supply chain can be viewed as a system of processes that cut across organizations and deliver customer value, rather than as a series of separate organizations and functions.
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Processes Across theSupply Chain
Network and information technology (IT) design support supply chain strategy for the system
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Supply Chain Strategy
SC Network
Design
IT DesignSlide5
Processes Across theSupply Chain Continued
Supply Chain Strategylong-range plan for the systemSupply Chain Network Design
design of the network structure and business process
Information Technology (IT) Design
enables data sharing, communication, and process synchronization
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What is a Business Process?
A business process is a structured set of activities or steps with specified outcomesprocesses involve many organizational functionsevery process has structural and resource constraints limiting output
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Copyright 2011 John Wiley & Sons, Inc.Slide7
Theory of Constraints
The Theory of Constraints (TOC) was introduced by Dr. Eliyahu Goldratt in his book The GoalPremise of TOC
every system has at least one constraint
Objective
identify the constraint and restructure the organization to eliminate its impact
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Copyright 2011 John Wiley & Sons, Inc.Slide8
System Constraints
A system cannot produce more than its constraining activity which is sometimes called the “bottleneck”Output is related to how system activities are linkedActivities can be linked:
serially
in parallel
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Serial Process Example
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Consider the following
distribution network:
Maximum output per day =
50,000 unitsSlide10
Consider the following
distribution network:
Maximum output per day =
64,000 units
Parallel Process Example
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Steps of Constraint Management
Identify the constraintExploit the constraintSubordinate all other processes to the above decision
Elevate the constraint
When the constraint changes, return to Step 1
Engage in continuous improvement
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System Variation
Every system or process has variationoutput variesactivities vary
equipment and facilities vary
Variation is a problem
consumes resources
adds complexity and uncertainty3-12
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Managing Process Variation
Process variation can be managed three ways:reduce or eliminate variationcreate buffers to deal with the variation
design more flexibility into the process to respond to the variation
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Capacity Implications
Linked supply chain organizations need to match capacities to avoid bottlenecksTwo common measures:Design Capacitymaximum output rate that can be achieved
Effective Capacity
maximum output rate that can be sustained under normal conditions
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Capacity utilization indicates how much of capacity is actually being used
Calculation:Utilization effective = (100%)
Utilization design = (100%)
Actual output
Effective Capacity
Capacity Utilization3-15
Copyright 2011 John Wiley & Sons, Inc.
Actual output
Design CapacitySlide16
A warehouse can process a maximum of 100,000 orders/day with overtime labor. The facility is designed to process 70,000 orders/day under normal conditions. In June, the facility processed 80,000 orders/day.
Capacity Utilization Example
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Calculate effective and design capacity utilization for the month of June
Utilization effective = (100%) = 114.3%Utilization design = (100%) = 80%
80,000
70,000
Capacity Utilization Example Continued
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Copyright 2011 John Wiley & Sons, Inc.
80,000
100,000Slide18
Integration of Supply Chain Processes
Companies move through a set of integration stages as their supply chain strategy evolvesThree Stages:Complete functional independence
Internal functional cooperation and coordination, but not across the supply chain
True supply chain integration
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Stages of Supply Chain Integration
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Vertical Integration vs. Coordination
Vertical Integrationownership of upstream suppliers and downstream customersFocus on Core Competenciesless important activities are outsourced
companies must coordinate processes between multiple supply chain entities
cooperation supplants historical adversarial supplier relationships
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Supply Chain Networks
Two important aspects of the supply chain network:Physical structure of the networkManagement of the network
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Supply Chain Structure
Three elements define supply chain network structure:Number of companies in the supply chainStructural dimensions of the network
Number of process links across the supply chain
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Supply Chain Structure Continued
Factors affecting supply chain network structure:product typeproduct characteristics
number of available suppliers
availability of raw materials
ease of access to customers
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Supply Chain Network Management
Not all supply chain branches and links need to be managed equallyidentify and manage key process links across the supply chainmanage processes across entire supply chain
integrate activities into SCM processes
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Designing Segmented Structures
Segmented supply chains help manage varying customer requirements in a networkEach segment will result in a different supply chain structure
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Designing Segmented Structures Continued
Three-step approach:Identify key drivers of operational complexityDesign differentiated supply chain segments tailored to these unique complexities
Create a customized end-to-end operational blueprint and performance metrics for each supply chain segment
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Ways to Segment Supply Chains
Segment Examples:Fast-moving vs. slow-moving productsFast growth vs. slow-growth productsTraditional vs. innovation versus online channel
High priority customers vs. low priority customers
Low-volume/low variability vs. low-volume/high variability
High-volume/low variability vs. high-volume/high variability
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Role of Information Technology
IT enables the linking of processes across the supply chainenables communicationprovides storage
organizes information
provides visibility
processes data within and between firms
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Enterprise Resource Planning (ERP)
ERP systems are a fully integrated computer-based technology used by organizations to manage resources throughout the supply chainERP is an Information Technology
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ERP Continued
ERP systems consolidate all business processes into an enterprise-wide system thatoperates in real timeuses a single, centralized databaseutilizes a standard format for inputted data
is comprised of modules for business processes
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ERP Modules
ERP modules can be selected based on the needs of the businessERP Modules:ManufacturingFinance
Human Resources
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Supply Chain Management
Project Management
Customer
Relationship Management (CRM)Slide32
ERP Components
ERP modules include multiple components designed for a specific purposeExample components of a Supply Chain Management Module:Inventory
Order Entry
Purchasing
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Supply Chain Planning
Supplier Scheduling
Product InspectionSlide33
ERP Configuration
ERP system configurations:Fully CustomizedStandardized “off-the-shelf” modulesMix of Customized and Standardized
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ERP Implementation
Implementation Steps:map current business processesidentify ERP modules to match processes
identify steps to efficiently unify modules with processes
further refine unity
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Review
A supply chain can be viewed as a system of processes. SCM involves managing these processes.A business process is a structured set of activities or steps with specified outcomes.The transactional view of supply chains focuses on the efficiency and effectiveness of managing supply chain processes.
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Review Continued
The relationship view of supply chains focuses on managing relationships across the supply chain.TOC explains how to manage a system. According to TOC every system has at least one constraint. A constraint is anything that prevents the system from being able to achieve its goal and is sometimes called the “bottleneck.” A system should be improved by managing the constraint.
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Review Continued
Design capacity is the maximum output rate that can be achieved by a facility. Effective capacity is the maximum output rate that can be sustained under normal conditions.ERP systems are a fully integrated computer-based technology used by organizations to manage resources throughout the supply chain.
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