Integrated Supply Chain Design

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Integrated Supply Chain Design

• Yang Sun, Ph.D., Six-Sigma Black Belt
• Assistant Professor
• College of Business Administration
• California State University, Sacramento
• suny_at_csus.edu

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Supply Chain an integrative view

• A network of value-added processes and
  stockpoints that deliveries goods and services to
  meet customer needs and wants.

Sources Wally Hopp, Supply Chain Sciences, 2005
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Push and Pull Supply Chains
Source Simchi-Levi et al., Designing and
Managing the Supply Chain

• Push production/distribution is driven by
  forecasts.
• Pull production/distribution is driven by real
  demand.
• push-pull boundary

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Examples?

• You own a supply chain. Your forecasts say that
  next month you are to sell 100k units. You place
  an order to your factory. 30 days later, 100k
  units will be out of your factory and ready to be
  sold to customers.
• You own a supply chain. A major customer has just
  placed an order of 100k units. You place an order
  to your factory. 30 days later, 100k units will
  be out of your factory and delivered to your
  customer.
• Are these two cases really different?
• In both cases, jobs are PUSHED into your factory
  (the upstream of your supply chain).
• PULL No one upstream should produce a good or
  service until the customer downstream asks for it
  (Womack and Jones, Lean Thinking).
• In practice, many people do not start the work
  until it is needed.
• Think about the busy nights before your
  assignments are due.
• Recommended reading To Pull or Not to Pull by
  Hopp and Spearman,available at
  http//www.factoryphysics.com/documents/MSOMPushPu
  ll.pdf

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Better Names

• Make-to-Stock
• Make-to-Order
• Inventory/Order Interface

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Push and Pull A Scientific Definition

• A Push Systems schedules job releases based on
  demand (forecasts or real orders).

• A Pull Systems authorizes job releases based on
  system status.

Source Wally Hopp and Mark Spearman, Factory
Physics
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Push and Pull
Job Flow
Information Flow

• Push
• Pull (Version 1)
• Pull (Version 2)

customer
customer
customer
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So, pull is not

• Kanban
• Kanban is a special case of pull
• Constant-WIP is a generalized pull concept
• Make-to-Order
• MRP with real orders is a make-to-order.
• But it does not limit WIP and is therefore a push
  system.
• Make-to-Stock
• Pull systems do replenish inventory voids.
• But jobs can be associated with customer orders.
• Forecast Free
• Toyotas classic system made cars to forecasts.
• Use of tact times or production smoothing often
  involves production without firm orders (and
  hence forecasts).

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Exercise

• Are the following systems push or pull?
• Kinkos copy shop
• Soda vending machine
• Doctors office
• Supermarket (goods on shelves)
• Runway at SFO during peak periods
• Order entry server at Amazon.com

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The magic of pull

• Cycle Time (?t) ?
• Variability ?
• Cost ?
• Service ?
• Quality ?
• Flexibility ?
• The key is the WIP cap.
• It is a control.
• WIP Work-in-Process, total number of jobs in
  the subsystem.
• Why control the WIP?
• Because it is easy. WIP can be observed directly
  (simply count).

WIP
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The science behind pull

• The Littles Law
• WIP Cycle Time Throughput

Reducing WIP is equivalent to reducing cycle time
and thus improves services and reduces costs
Throughput is limited by capacity and cannot be
observed directly because of process variability.
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Designing a Supply Chain

• Most systems are hybrids.
• The strategic issue is to determine
• where to hold the strategic inventory
• i.e., the location of the inventory/order
  interface.

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Material
Intermediate Inventory
Finished Goods
Processes
Processes
Deliver
CUSTOMERs
MTS
MTS
MTO
MTS
MTO
MTS
MTO
MTO
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Buffer

• We have learned all kinds of negative things
  about inventory.
• Why are we still building inventory?
• To buffer against variability.
• Variability always exists and can be buffered by
  some combination of
• Inventory
• Capacity
• Time

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Integrated Product and Supply Chain Design
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Example How to make computer chips
Inventory
Raw Material
CUSTOMERS
Configuration Shipment (C/S)
Wafer Fabrication (W/F)
Assembly Test (A/T)
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Product Redesign
How about making the chips programmable?
Programmable Computer Chips
Raw Material
CUSTOMERS
Mass customization
Technology is an enabler.
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Forecasting

• MTS Inventory is built based on forecasts.
• LAWS of Forecasting
• Forecasts are always wrong.
• The further into the future, the more wrong.
• Aggregate forecasts are better than individual
  forecasts.

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Material
Intermediate Inventory
Finished Goods
Assembly
Parts
Deliver
CUSTOMERs
MTS
MTS
MTO
MTS
MTO
MTS
MTO
MTO
The strategic inventory (inventory/order
interface) can often serve as a major
differentiation point.
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Competitive Advantage
Rapid New Product Development
CompetitiveAdvantage
Operational Excellence
Source Porter, M. (1985) Competitive Advantage
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We think in generalities, we live in detail.
Alfred North Whitehead