Basic SCM Ppt

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Overview of Supply Chain

BasicsJames Elam, Manager,

3M Supply Chain Network Analysis

Rob Wehrman, Manager,3M Supply Chain Optimization &

Modeling Expertise Center

Why Just-in-time Won’t Work for Public Health

3Our Values and Goals

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Electro and Communications Business

Consumer andOffice Business

Display andGraphics Business

Health CareBusiness

Industrial and TransportationBusiness

Safety, Security and Protection Services Business

Six Market - Leading Businesses

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International Focus3M companies in more than 60 countriesSales in nearly 200 countriesConsulting with Ministries of Health outside the US on Pandemic Influenza Preparedness

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James Elam, Manager, 3M Supply Chain Network Analysis

Rob Wehrman, Manager, 3M Supply Chain Optimization & Modeling

Expertise Center

Speakers

3© 3M 2006 All Rights Reserved

AgendaIntroductionBasics Concepts in Supply Chain and ManufacturingJust-in-Time Manufacturing ConceptsWarehouse and Transportation ConsiderationsConclusionsQuestions

General Supply Chain Processes

Demand Information Material Flow

Mate

rial F

low

Material Flow

Typical Supply Chain Network Model

Manufacturing

Information

Forecasted Demand and/or Orders

Plan

ning

Plan

ning

Plan

ning

Plan

ning

Plan

ning

DelayDelay Delay

DistributionSupplier Customer


Types of Manufacturing Processes: Batch

Most prevalentPlanned quantity of one productMany different products made on same equipmentEconomic situation determines an optimal batch size Products are run in a logical sequence to optimize processLead time includes waiting in queue and processing time


Types of Manufacturing Processes: Flow

Not as prevalentSingle product productionVery low variabilityEquipment usually runs at a steady paceLead time is short as product is available all the timeCapacity is expensive and hard to increase


Manufacturing CapacityUsually fixed at a rate determined by equipmentEconomics drive minimum capacity to meet demandSome excess capacity accommodates variabilityDemand can exceed capacityAdding capacity is generally a long lead time

Hypothetical Demand of an Item

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Time Periods

Dem

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Qua

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Capacity Demand Avg. Demand

Demand can exceed capacity

Capacity


Manufacturing Planning Processes: Make-to-Stock

Demand lead time is shorter than supply lead timeOrders are filled from inventoryUse forecast to produce inventory before demand occursIt is important to forecast accuratelyReplenishment quantities are based on an economical size

Time

Inve

ntor

y

Safety StockCycle Stock Cycle Stock Cycle Stock

Consumption Replenishment

Reorder


Manufacturing Planning Processes: Make-to-Order

Wait for actual orders before productionDemand lead time is longer than supply lead timeUsually used for low demand items that are hard to forecast


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Time Periods

Dem

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Capacity Demand Avg. Demand

Lead time allows making product when capacity is available


Importance of Demand ForecastForecast is an estimate of anticipated demandAll forecasts have errorForecast error is the difference in the forecast and actualThe goal is to have minimum forecast error such that the planning is acceptable

Time

Demand

Actual DemandForecast

Low forecastError:

System is stable

High forecastError:

System is chaotic

Error


History of Just-in-Time Manufacturing

1799 – Eli Whitney, interchangeable parts1910 – Henry Ford, first to implement Just in Time manufacturing

“We have found in buying materials that it is not worth while to buy for other than immediate needs,” Henry Ford.Designed a process that eliminated waste and reduced variability

1950 – Toyota introduced the “Toyota Production System”Replication of the Ford systemIncluded new concepts of Total Quality Management, Small Batch Production and Cellular Manufacturing

1990 – James Womack, The Machine that Changed the World,History of automobile manufacturing in Japan, US and Europe“Lean Manufacturing” is introduced as a new phrase for JIT

Today – It’s still all about eliminating waste in the total business process


“Just-in-Time” Concept

Definition: Producing exactly what is needed and transferring it to where it is needed precisely when required.Characteristics:

Little or no inventoryMostly make-to-order with short lead timesGreatly reduced variability from all sourcesEliminate “special cause” variabilitySupply chain synchronizes to a pacing processMany tightly scheduled eventsExcess capacity is a form of waste that is minimized

JIT Systems are deliberately designedIt can take years to establishThey don’t occur naturally or by chance



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Capacity Normal Demand Avg. Demand

Example – Normal Demand PatternHypothetical Demand of an Item

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Capacity Normal Demand

Avg. Demand JIT Demand


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Capacity Normal DemandAvg. Demand JIT DemandUnplanned Demand

Special Cause Demand that JIT will

not accommodate


JIT Shortcomings for Public Health System

Demand is characterized by large unexpected eventsEnd user lead time requirements are extremely shortThe steady state condition of the supply chain will not accommodate the high demand spikesNot practical to have enough capacity to accommodate high demand spikesPublic health emergencies can’t be scheduled in advance

For public health emergencies… you should have inventory on hand

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Distributor

Material flow and Inventory

EndUse

Manufacturer

Public Health

Short lead time with inventory

Long lead time without inventory

Limited storage capacity

Inventory in many locations


Limited inventoryPlanned based demand

Limited capacity, flow rate is limited

Longer lead timePlanned with forecast

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Distributor


EndUse


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Under normal conditions the system is in balance

Manufacturer

Public Health









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EndUse


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Capacity Normal DemandAvg. Demand Unplanned DemandUnplanned Avg. Demand

When demand exceeds supply inventory is consumed

Manufacturer

Distributor

Public Health









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EndUse


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If demand exceeds supply long enough inventory is depleted

Manufacturer

Distributor

Public Health









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EndUse


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After unplanned demand system can be put back in balance

Manufacturer

Distributor

Public Health











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Planning for High Demand



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Forecast event

Capacity added in response over time

Create stock



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Forecast event

Capacity added in response over time

Create stock early


Summary

Basics Concepts in Supply Chain and ManufacturingMost manufacturing is a batch processMost finished goods are inventoried in a Make-to-Stock system (Forecast of demand is important)Manufacturing has capacity limits

Just-in-Time Manufacturing ConceptsDesigned to be very efficient under normal conditionsNot designed to handle large unexpected demandMust be deliberately designedExecuted with rigorous planning

For public health emergencies… you should have Inventory on hand


Warehousing and Transportation Considerations

Warehousing / storing material is the common method of dealing with variability in the supply chainWhere is the best place to position material prior to the publichealth emergency?Do you possess the capabilities to store some / all of what you need in your POD? What other logistics issues are important for you to consider asyou make your decision?


Risk-Pooling

Risk pooling is the concept that demand variability reduces as we aggregate demand

Across CustomersAcross ProductsAcross Time Periods

Customer 1

Customer 2

Customer 3

Expected Value = 100Std Dev = 30



Combined Distribution

Expected Value = 300Std Dev = 51.9

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Storage and Planning OptionsAdvantages•Risk Pooling•Public Health manages •Shared space Disadvantages•Longer lead times •Transportation concerns

Advantages•Shorter lead time•Fewer transport concerns•High level of local control Disadvantages •Higher resource requirement •Logistics expertise needed•Space/storage required •No risk pooling

Advantages •Shorter lead time•Fewer transport concerns•Existing expertise Disadvantages •Space/storage required•Less Control •No risk pooling

Advantages •Economies of scale •Minimal local overhead •Pay based on risk •Existing expertiseDisadvantages•Longer lead times•Transportation concerns

Local

Central

Public Health Others

Management of Process

Physical Storage


Local Storage – Self Managed Inventory

Inventory positioned at and managed by POD Local control of procurement and inventory

POD responsible for and directly affected by degree of forecast errorRequires local ongoing planning and management of resources

People – sufficiently trained Facilities - sufficient space for storage, special requirements, e.g. hazardous, temp. control, clean area, aerosol storage, security.Material handling – racking, hand trucks or power equipmentSystems – procurement, inventory tracking/control/recordsMust manage inventory including expiration dates, lot/serial control

Product onsite during public health emergencyFewer transportation concerns Fewer product lead time concerns

POD

POD

Carries Inventory &

Manages Process


Local Storage – 3rd Party Managed Inventory

Inventory positioned at POD but managed by 3rd Party Facilities - sufficient space for storage, special requirements, e.g. hazardous, temp. control, clean area, aerosol storage & security.Outsource management of inventory including expiration dates, lot/serial control

Leverage existing expertise and systems Product onsite during public health emergency

Fewer transportation concerns Fewer product lead time concerns

POD3rd Party

POD

Carries Inventory

Manages Process


Central Storage – Self Managed Inventory

Inventory positioned at central warehouse and managed by public health

Simplifies managing expiration dates on inventoried itemsInventory risk pooling Economies of scale - Requires fewer people or equipment resources

Public Health must manage procurement process Material must be transported to POD at time of public health emergency

Transportation infrastructure issues during public health emergencyTransit times (lead times) must be considered

PODCentral

Warehouse

POD

Carries Inventory &

Manages Process


Central Storage – 3rd Party Managed Inventory

Inventory positioned at and managed by 3rd PartyNo long term physical storage concerns – less space & overheadReduces issues with managing expiration dates on inventoried itemsInventory risk pooling Economies of scale Supplier managed replenishment

Minimal Public Health resource requirementsPublic health staff can focus on public health issuesLeverage existing logistics expertise & systems

Material must be transported to POD at time of public health emergency

Transportation infrastructure issues during public health emergencyTransit times (lead times) must be considered

POD3rd Party

Warehouse

POD

Carries Inventory& Manages

Process


What Do I Need to Know if I Plan to Locally Store Material?

Minimum requirements for local physical storage and material handling

1. Product Information2. Physical Space & Material Handling Equipment 3. Operating Information System & Process 4. Personnel


Product InformationWhy is this important?Product database is basis for material movement and storage requirements

ManufacturerSKU# (Stock Keeping Unit)Product specifications - e.g. description, tape sizeSpace requirements for this SKU

Carton dimensions and weight How will this item be received?

Pallets, loose cartons, broken caseHow much will we order?

Estimate average on hand Special storage requirements (Follow manufacturers instructions) –hazardous, medical clean, cool or cold, aerosol, corrosive etc.

Resource type per NIMS guidelinesMy supplier informationMinimum order quantity? Billing vs. shipping units Product lead time


Physical Space & Material Handling

Sufficient secure space for storage and inbound / outbound handling areaSlotting - Sufficient space to store each SKU

How much of each product will I have to store?How much space does it require?Special storage requirements, e.g. cool or cold room, hazardous,clean room, aerosolSufficient Shelving or racks for each item (if required)

Can SKU be stored on the floor?Material handling equipment

What will be received and how will we handle it?Material totesPallet handling and movement

Hand Jacks or fork trucks required?High storage requires reach equipment


Operating Information System & Process

What system will I utilize to manage supply chain? Logistics plan What level of sophistication required?Spreadsheets vs. Warehouse Management or Inventory Systems

Procurement How much do I need of a product?When do I need it? What are lead times?How do I procure product?Will I need to reorder product?

Reorder point management – reorder cards or system? Receive

Physically receive materialAccount for material – record transactions in my system, including run lot/serial/number Identify damage or discrepancies Prepare for storage – secure or prepare for storage


Operating Information System & Process

StoreTransport to storage location- bin, shelf, rack or floor space Account for location on system – where did I put it, when, how much & run/lot/serial? Ongoing maintenance & recordkeeping

Manage run/lot/serial expiration Maintain space – cleanliness/order

Security Pick material

How do I manage this process during emergency public health emergency?Pick list?Record run/lot/serial numbers pickedUpdate inventory records

Return & Recovery Disposition damage Disposition expired materialUpdate inventory record including run/lot/serialRe-supply – trigger replacement order


Personnel

How many people do I need to manage receipt, storage and tracking of product?

Ongoing – how much and what type of work is required to maintain inventory and supply chain?Public health emergency-

Will I need to create kits or will items be used as-is?How many & what type of resources (people & equipment) will I need during the emergency and how will I get them? Small versus large/complex operationSelf dispensing?

What skill sets will they have to have?Basic inventory management?Material Handling?Material Special Requirements?


Conclusions

Work with existing defined resources (i.e. NIMS)Type of resourcesMaking plans to mobilize, de-mobilize, etc

Talk with your existing distributionCan’t make a plan until you know your demandDon’t wait for emergency to buy materials

JIT will not work doing a public health emergency

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Q & A

Basic SCM Ppt

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