MGE 475 Quantitative Methods in Production Management Handout

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MGE 475 Quantitative Methods in Production
ManagementHandout 11School of
EngineeringUniversity of BridgeportSpring 2006
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Supply Chain Management

• The process of planning, organizing, and
  controlling the flow of materials services, and
  information from suppliers to end
  users/customers.
• This integrated approach incorporates suppliers,
  supply management, integrated logistics, and
  operations.
• Extend the reach beyond one organizations effort
  to deliver product or services from initial
  suppliers to final customers
• Manage bottlenecks and reduce impact on customers

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Introduction - Supply Chain
Market research data Schedule information
Engineering and design data Orders and cash
flows
Supplier
Customer
Ideas and design to meet the customer demand
Material flow Cash flow
Inventory
Supplier
Customer
Manufacturer
Inventory
Inventory
Supplier
Distributer
Customer
Inventory
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Introduction
Two major requirements of an efficient
production, technology know-how are widely
available. Disappearing price and quality
differences between competing products. Supply
chain efficiency Key to success. ? Supply Chain
Management (SCM).
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Introduction cont
An efficient SCM achieve cost supply time
reductions, give timely responses to rapidly
changing market conditions ? maintain
competitiveness. The success of SCM activities
mostly depends on an efficient Logistics
management. As firms expand it becomes difficult
to focus on their core competency areas. One
effective solution, providing a more core
competency-focused environment for businesses
while increasing the efficiency of logistics
operations is to outsource logistics. Third
party service provider (3PL) is an important
component of domestic and international
logistics strategies for many US manufacturers.
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Integrated Logistics

• Process of
• anticipating customer needs and wants
• acquiring the capital, materials, people,
  technologies, and information necessary to meet
  those needs and wants
• optimizing the goods or service producing
  networks to fulfill customer requests
• utilizing the network to fulfill customer request
  in a timely way.

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Integrated Logistics

• Integrated logistics has two categories
• Logistics activities
• Transportation, facilities, inventory, material
  handling, communications, and information
• Service response logistics activities
• Waiting time, capacity, and delivery

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Components ofLogistics Management
Management actions
Outputs oflogistics
Inputs into logistics
Implementation
Control
Planning
Marketingorientation(competitiveadvantage)
Naturalresources(land, facilities, and
equipment)
Logistics management
Timeand placeutility
Humanresources
Finishedgoods
Rawmaterials
In-processinventory
Suppliers
Customers
Efficientmovementto customer
Financialresources
Proprietaryasset
Logistics activities
Informationresources

• Customer service
• Demand forecasting
• Distribution communications
• Inventory control
• Material handling
• Order processing
• Parts and service
• support

• Plant and warehouse site selection
• Procurement
• Packaging
• Return goods handling
• Salvage and scrap disposal
• Traffic and transportation
• Warehousing and storage

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Key Logistics Activities

• Customer service
• Demand forecasting/ planning
• Inventory management
• Logistics communications
• Material handling
• Order processing
• Packaging

• Parts service support
• Plant warehouse site selection
• Purchasing
• Return goods handling
• Reverse logistics
• Traffic transportation
• Warehousing storage
• Others

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Cost of Logistic Activities

• Customer service levels
• Transportation
• Warehousing
• Procurement
• Order processing
• Information systems
• Lot quantity
• Inventory carrying
• Others

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3PL
Today, an average 3PL user spends 33 percent of
its annual logistics operating budget on 3PL
services. This number is 44 percent and expected
to increase to 49 percent for North American
companies. As the 3PL services become more
costly, choosing efficient 3PLs became an
increasingly more challenging task which
requires a detailed assessment of the
alternatives. Due to recent environmental
regulations and growing public awareness
regarding environmental issues, 3PLs should also
be environmentally benign.
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Supplier Criteria Evaluation
Price Variable
Delivery Variable
Service Variable
Quality Variable
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Supplier Evaluation Variables

• Service
• Ease of operation or use
• Ease of maintenance
• Reliability of service
• Sales service
• Supplier flexibility
• Training offered
• Training offered
• Training time required
• Technical service offered
• Ordering convenience

• Price
• Price of materials
• Financing terms
• Delivery
• Reliability of delivery
• Total transit time
• Quality
• Overall supplier reputation
• Product reliability
• Technical specifications

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Supplier Criteria Measurement

• Price effectiveness actual against plan
• Cost savings reducing unit costs or avoidance
• Workload measuring new, backlog, accomplished
• Administration and control Actual to plan
• Efficiency output to input
• Supplier quality and delivery
  accepted/rejected
• Material flow control flow of material from
  supplier to buyer
• Regulatory, societal, and environmental measures
  meeting requirements
• Procurement planning and research
  Price/lead-time forecast accuracy
• Inventory analyzing turnover
• Transportation use of premium transportation

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• Reverse Logistics

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Environmentally Conscious Manufacturing
Environmentally conscious manufacturing (ECM) is
concerned with developing methods for
manufacturing new products from conceptual design
to final delivery, and ultimately to the
end-of-life (EOL) disposal such that the
environmental standards and requirements are
satisfied.
Product Recovery
Product Recovery aims to minimize the amount of
waste sent to landfills by recovering materials
and parts from old or outdated products by means
of recycling and remanufacturing (including reuse
of parts and products).
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Overview

• 20 Million PCs became obsolete in 1998 (National
  Safety Council )
• 60 Million by year 2005
• 500 Million accumulation between the years 1997
  and 2007
• 7.5 Million Tons of potential waste

• EOL Options
• Reuse
• Recycle
• Storage
• Disposal

Currently 80 PCs are stored
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Legislative and Economic Incentives

• Governmental regulations
• EPA guidelines
• Clean-up taxes
• Take-back policies
• Changes in customer perspective
• Positive economic incentives
• Recycling
• A company in Irvine, CA, recovered 79 million
• from computer recycling (Aeppel, 1994)
• Remanufacturing
• Reusable parts and products are brought back into
  production

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Boston Globe March 31, 2000
Governmental regulations
Old monitors now hard to dump in MA MA residents
are no longer able to discard their old computers
and TV monitors as they please since a
first-in-the-nation electronic disposal ban went
into effect on Saturday. The ban, issued by the
Massachusetts Department of Environmental
Protection (DEP), promotes the recycling and/or
donation of computers and TV monitors.
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Kongar, 2006
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Comparison of Supply Chain and Reverse Supply
Chain
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Issues in Material and Product Recovery

• Recycling
• Definition Recycling is the process of
  recovering the material content of end-of-life
  (EOL) products by performing the necessary
  disassembly, sorting and chemical operations
• Identities of parts of EOL products are lost
• Remanufacturing
• Definition Remanufacturing is the process of
  performing the required disassembly, sorting,
  refurbishing and assembly operations in order to
  bring parts of an EOL product (or the entire
  product) to a desired level of quality
• Identities of parts of EOL products are not lost
• Disassembly
• Definition Disassembly is a systematic method
  for separating a product into its constituent
  parts, components, subassemblies, or other
  groupings

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The Product

• The disassembly process starts with a product.
  The product represents a functionality (ability
  to provide services).
• The product consists of a number of discrete
  parts, which are called components. A component
  cannot be further disassembled and is sometimes
  called an atomic part for this reason.

Disassembly Modeling for Assembly, Maintenance,
Reuse, and Recycling by A. J. D. Lambert and S.
M. Gupta, CRC Press
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Components

• Components can be grouped in subassemblies.
• A subassembly is a connected set of components.
• A subset is also a set of components of the
  product that is not necessarily connected. Yet
  another way of grouping of the components is in
  modules, which are functional units, composed of
  components.

Disassembly Modeling for Assembly, Maintenance,
Reuse, and Recycling by A. J. D. Lambert and S.
M. Gupta, CRC Press
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Connection

• If the components are physically linked, such a
  link is called a connection.
• The terms liaison and joint are also used.
• If the components are nearly in touch with each
  other, this can be considered a virtual
  connection in some cases.

Disassembly Modeling for Assembly, Maintenance,
Reuse, and Recycling by A. J. D. Lambert and S.
M. Gupta, CRC Press
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Mating

• Connections restrict the freedom of motion of the
  components involved.
• Mating is a way of connecting components.

Disassembly Modeling for Assembly, Maintenance,
Reuse, and Recycling by A. J. D. Lambert and S.
M. Gupta, CRC Press
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Fasteners

• In some cases, specialized components, or parts
  of components, called fasteners are used for
  connections.
• Fasteners can be discrete components such as
  screws, or nondiscrete material objects such as
  snap fits.
• If the fastener is a component, but not
  considered as such in modeling, it is considered
  a quasi-component.

Disassembly Modeling for Assembly, Maintenance,
Reuse, and Recycling by A. J. D. Lambert and S.
M. Gupta, CRC Press
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Product Life Cycle
http//en.wikipedia.org/wiki/Product_life_cycle_ma
nagement
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• Products tend to go through five stages
• New product development stage
• very expensive
• no sales revenue
• losses
• Market introduction stage
• cost high
• sales volume low
• losses
• low prices
• Growth stage
• costs reduced due to economies of scale
• sales volume increases significantly
• profitability
• prices to maximize market share
• Mature stage
• costs are very low
• sales volume peaks
• prices tend to drop due to the proliferation of
  competing products

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Reasons for Reverse Logistics Systems

• Trade-ins
• Take-backs
• Universal product recalls
• Units for inspection or recalibration
• Products not meeting guarantees

• Return of goods for credit
• Rental or lease returns
• Warranty returns
• Reusable containers
• Consignment agreement returns

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Stages of the Recycling Supply Chain

• Collect waste materials from recycling bins and
  deliver them to recycling entity
• Process recyclables to create secondary raw
  materials
• Use secondary materials to make new products
• Return products to the marketplace

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Customer Returns of New Products

• Customers return
• unwanted
• defective
• damaged products
• Reverse logistics systems must quickly restock
  returned items
• Supply chain member may have to take financial
  responsibility for loss or damage, depending upon
  circumstances

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Customer Returns of Used Products

• Customers can return certain cores and get
  refunds for use in re-manufactured items
• The automotive industry uses this reverse
  logistics practice

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Customer Returns of Reused Products

• Some products can be reused with sterilization
  and cleaning
• Often retail stores give refunds for glass soda
  bottles
• Bottles are returned to bottling plant for
  refilling and reuse

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Outsourcing Reverse Logistics Requirements

• Logistics outsourcing (also known as third-party
  providers) is
• the decision to use independent, external
  organizations as the means of accomplishing some
  or all of the logistics related functions within
  the firm.
• Common alliances are formed between companies and
  outsource firms

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Green Alliance Guidelines

• Selection of an environmental partner
• Market positioning of the green alliance
• Manage partner/alliance relations

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Life-Cycle Analysis

• Measures economic and environmental impact of a
  product through its manufacture, use, and
  disposal
• Assesses the environmental and economic impact of
  a product through its entire life

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Environmentally Conscious Program

• Phase 1 Reactive
• Companies meet minimum government standards
• Phase 2 Proactive
• Companies implement recycling and reuse programs
  voluntarily
• Phase 3 Value-seeking
• Companies eagerly address environmental concerns

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Drivers and Constraints of Reverse Logistics
Stakeholder commitment
Regulations
Top management
Customers
Reverse logistics
Policy entrepreneurs
Quality of inputs
Incentive systems
Uncertainty
Coordination
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Determining Transportation and Location

• Cost of transporting used and recyclable goods
  can exceed their value
• Cost usually drives the transportation decision
  for reverse logistics
• Considerations are mode choice and facility
  location

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Product Life Cycle

• Conceptual Life Cycle
• Physical Life Cycle

Wikipedia
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Conceptual Life Cycle

• Conceptual Life Cycle refers to the duration of
  time in which a product is considered viable in
  the market.
• The conceptual life cycle comprises the design
  phase, the state-of-the-art (useful) phase and
  finally the phase of products decline.
• In the final phase the product becomes outdated
  and needs replacing even though the product is
  technically sound.

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Conceptual Life Cycle

• Depending on the product, the conceptual life
  cycle encompass an appreciable period of time.
• On the other hand, electronic products such as
  computers and mobile phones tend to have
  substantially conceptual life cycles.
• A shorter conceptual life cycle causes products
  to be discarded, even if they still are
  technically sound, thus preventing their
  components from being used in new or
  remanufactured products.

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Physical Life Cycle

• The physical life cycle refers to the duration of
  time that spans from the production of a product
  up to the moment that is discarded.

Wikipedia
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Planned Obsolescence
Planned obsolescence is the marketing strategy of
deliberately introducing obsolescence into a
product strategy. Obsolescence, in general, is
the process of passing out of usefulness. In a
business context this means the object is no
longer perceived as having value, that is, a
product is no longer wanted even though it is
still in good working order. This can be
contrasted with deterioration, which is a process
of disintegration or degeneration.
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Planned Obsolescence
The difference is that obsolescence is a
perception about the usefulness of an object
whereas deterioration is a physical process. The
two concepts are highly correlated, but neither
is a sufficient or necessary condition of the
other. That is, you can have obsolescence without
deterioration, and you can have deterioration
without obsolescence.
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Rationale Behind the Strategy

• A new product development strategy that seeks to
  make existing products obsolete may appear
  counter intuitive, particularly if you are a
  leading marketer of the existing products.
• Why would a firm deliberately endeavour to reduce
  the value of its existing product portfolio?
• The rationale behind the strategy is to generate
  long-term sales volume by reducing the time
  between repeat purchases, (referred to as
  shortening the replacement cycle).

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Rationale Behind the Strategy

• Firms that pursue this strategy believe that the
  additional sales revenue it creates more than
  offsets the additional costs of research and
  development and the opportunity costs of existing
  product line cannibalization.
• However, the rewards are by no means certain
• In a competitive industry, this can be a risky
  strategy because consumers may decide to buy from
  your competitors.

Wikipedia
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Types of Planned Obsolescence

• Functional obsolescence
• Systemic obsolescence
• Style obsolescence
• Notification obsolescence

Wikipedia
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Functional Obsolescence

• Planned functional obsolescence is a type of
  technical obsolescence in which companies
  introduce new technology which replaces the old.
• The old products do not have the same
  capabilities or functionality as the new ones.
• For example a company that sold video tape decks
  while they were developing DVDs were engaging in
  planned obsolescence.
• That is, they were actively planning to make
  their existing product (video tape) obsolete by
  developing a substitute product (DVDs) with
  greater functionality (better quality).
• Another example is the replacement of telegraphs
  with telephones.
• Associated products that are complements to the
  old products will also become obsolete with the
  introduction of new products. For example video
  tape holders saw the same fate as video tapes and
  video tape decks. Likewise, buggy whips became
  obsolete when people started traveling in cars
  instead of buggies.

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Systemic Obsolescence

• Planned systemic obsolescence is the deliberate
  attempt to make a product obsolete by altering
  the system in which it is used in such a way as
  to make its continued use difficult.
• For example new software is frequently introduced
  that is not compatible with older software.
• This makes the older software largely obsolete.
  For example, even though an older version of a
  word processing program is operating correctly,
  it might not be able to read .doc files from
  newer versions.
• The greater the network externalities in the
  market, the more effective is this strategy.
• Another way of introducing systemic obsolescence
  is to eliminate service and maintenance for a
  product.
• If a product fails, the user is forced to
  purchase a new one.
• This strategy seldom works because there are
  typically third parties that are prepared to
  perform the service if parts are still available.

Wikipedia
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Style Obsolescence

• Planned style obsolescence occurs when marketers
  change the styling of products so customers will
  purchase products more frequently. The style
  changes are designed to make owners of the old
  model feel 'out of date'.
• It is also designed to differentiate the product
  from the competition, thereby reducing price
  competition. Marketers also claim that style
  changes relieve peoples' boredom and allows for
  both self-expression and conformity at the same
  time.
• One example of style obsolescence is the
  automobile industry in which manufacturers
  typically make style changes every year or two.
  As the former CEO of General Motors, Alfred P.
  Sloan, stated, "Today the appearance of a
  motor-car is a most important factor in the
  selling end of the businessperhaps the most
  important factor because everyone knows the car
  will run."

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Style Obsolescence

• Some marketers go one step further they attempt
  to initiate fashions or fads. A fashion is any
  style that is popularly accepted by groups of
  people over a period of time. A fad is a short
  term fashion.
• Examples of successfully created fashions or fads
  include Beanie Babies, Ninja Turtles, Cabbage
  Patch Kids, Rubik's Cubes, pet rocks, acid wash
  jeans, Pokémon, and tank tops. Obsolescence is
  built into these products in the sense that
  marketers are aware of the shortness of their
  product life cycles so they work within that
  constraint.
• For example, when Beanie Babies sales revenue
  started to decline, company president Ty Warner
  astutely decided to go for one last Christmas
  marketing push and then drop the product.

Wikipedia
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Notification Obsolescence

• Some companies have developed a very
  sophisticated version of obsolescence in which
  the product informs the user when it is time to
  buy a replacement.
• Examples of this include water filters that
  display a replacement notice after a predefined
  time and disposable razors that have a strip that
  changes colour.
• If the user is notified before the product has
  actually deteriorated, planned obsolescence is
  the result. In this way obsolescence can be
  introduced without going to the expense of
  developing a new replacement product.

Wikipedia
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Obsolescence and Durability

• If marketers expect a product to become obsolete
  they can design it to last for a specific
  lifetime.
• For example, if a product will be technically or
  stylisticly obsolete in five years, many
  marketers will design the product so it will only
  last for that time.
• This is done through a technical process called
  value engineering An example is home
  entertainment electronics which tend to be
  designed and built with moving components like
  motors and gears that last until technical or
  stylistic innovations make them obsolete.

Wikipedia
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Obsolescence and Durability

• These products could be built with military spec
  components, but they are not because it is felt
  that this imposes an unnecessary cost on the
  purchaser.
• Value engineering will reduce the cost of making
  the product, and lower the price to consumers
  (unless there is a lack of competition in the
  industry, in which case the cost reduction will
  probably not be passed on to the consumer in the
  form of lower price).
• A company will typically use the least expensive
  components that satisfy products lifetime
  projections.

Wikipedia