BASICS OF SUPPLY CHAIN MANAGEMENT

APICS
CPIM Certification Course Study Guide

Institute of Manufacturing Resource Management of India

Copyright © by IMRMI All rights reserved by IMRMI. No portion of this publication may be reproduced in whole or in part.

Foreword
First, let me thank Mr. Anakala Vijay Bhaskar Reddy, CPIM, and Mr. Pradeep V. Khetan, CPIM for giving me the opportunity to write this foreword. I feel honoured and flattered. It is my mission, vision and dream to see my country, India, attain back the leadership position in the world. I am quite confident that we as a nation will do it. Towards achieving this mission, I found APICS body of knowledge quite powerful. I decided to bring this body of knowledge to India, when I took my APICS certification exams in 1985 in the US. The APICS certification programme started in India in 1992. The beginning was tough. Mr. Anand Mahindra may not remember, but I am still grateful to him for sponsoring senior managers of Mahindra & Mahindra and Mahindra Ugine in this programme, as the first few APICS certification candidates. Then came the support of BaaN Company. Mr. S. Ramanathan, then heading BaaN, was (and is) our well-wisher. We received a lot of support from Arthur Anderson (Accenture now). I have not forgotten the support I received from Mr. J. A. Choudhary, who was the chairman of STPI, Hyderabad at that time. I know that I am forgetting many names but the whole success is attributed to lots and lots of people who provided their selfless support to this programme and to me. I am also thankful to each and everyone at APICS head quarters in USA, who gave us tremendous support at every step. Last but not the least, I must thank my wife Shashi, CPIM herself and my brother-in-law Pradeep Khetan, CPIM, who became responsible for running this show, for holding this torch tight and making progress under all adverse conditions. Even though, the programme was highly appreciated from day one, I felt that the cost was little high for an average Indian, which I saw as an impediment in achieving our mission and propagating this body of knowledge at a bigger level. Therefore we tried to keep the cost as low as possible. A significant part of the cost was spent in study material that is imported at a high cost. I always wanted that the study material be made available at a cost that my fellow Indians could easily afford. This was possible if an Indian author developed the study material. I wanted to write a book on APICS body of knowledge myself, but my busy schedule never permitted me to make my dream a reality. The same is true for most APICS certified professionals who lead lives of meeting project deadlines and constantly under pressure. One day, in the year 2002, Mr. Deepak Shikarpur of Computer Society of India, encouraged us to develop some indigenous material on APICS body of knowledge that CSI could use to impart supply chain management domain knowledge to young and budding IT professionals of India. This will help them in taking their services up in the value chain globally. I knew that this task was difficult. So, we invited the individuals with the missionary zeal to come forward and help us in developing this material. Many came forward and provided their invaluable time and knowledge. Among them, it is worth praising few individuals for their selfless dedication and commitment:

Ms. Renu Lata Rajani, CPIM Mr. Anakala Vijay Bhaskar Reddy, CPIM Mr. Satyendra Pal, CPIM Mr. Ismail Dawood Patel, CPIM Mr. Mahiyar Faredoon Adajania, CPIM Mr Shashank Deshpande, CPIM Mr M V U Nageshwara Sharma, CPIM Mr Zubair Haroon Safdar, CPIM Mr Vijay Sambhaji Chavan, CPIM Mr T Venkata Krishna, CPIM Mr Ranjit Gangadharan, CPIM Mr. R V Ramakrishnan Mr C Ravindran, CPIM, CIRM This material is the result of their contribution and effort. I must once again mention here that these individuals are highly successful in their lives and are very busy. In spite of that, they have taken out time to fulfill their duty towards the society. Please join me in saluting these men and thanking them for the gift of knowledge they have given to their fellow professionals. I am sure that this material will be quite useful for all supply chain management professionals whether they are appearing for APICS certification or not. I wish them all the best.

Ravindra K. Tulsyan, CFPIM CIRM President Institute of Manufacturing Resource Management of India

Authors
Renu Rajani, CPIM
Author : Chapter 4 (Design) Chapter 7 (Execution and Control) Chapter 8 (Performance Measurement) Renu Rajani is Principal Consultant and head of Software Testing Business at vMoksha Technologies for the last 2 years. Earlier she worked for KPMG Management Consulting India for 5 years in the areas of Supply Chain Management, eBusiness, Business Process Reengineering, IT Strategy, IT Outsourcing and Enterprise Resource Planning. Renu is on the Executive Committees of Bangalore Management Association, Indian Institute of Materials Management (Bangalore Branch) and Operations Research Society of India. She is an MBA from Purdue University, USA, a B.Tech in Computer Science and Holds CFA, ACS (Inter), CFP, CPIM, CSTE and PMP Professional Certifications Renu Rajani can be reached at renurajani@vsnl.com
HTU UTH

Anakala Vijay Bhaskar Reddy, CPIM
Author : Chapter 6 (Planning) Chapter 12 (Physical Distribution) Vijay Bhaskar Reddy is currently working with the R&D Division of Baan Info Systems India as a functional Engineer for Baan ERP and Baan E-enterprise Products. He is with Baan Since Nov 1999 and has contributed to the functional areas of Baan ERP – Order Management (Sales and Purchase), Warehousing, Enterprise Planning, Manufacturing, iBaan e-Sourcing and iBaan e-Procurement. Prior to joining Baan, Vijay served the Indian Navy for three years. He was commissioned in the Indian Navy in 1995. In his tenure in the Navy, he contributed to the areas of Materials Management, Refit coordination and Staff duties. He is a graduate of Industrial and Production Engineering from Nagarjuna University, Andhra Pradesh, and is Certified in Production and Inventory Management (CPIM) by American Production and Inventory Control Society (APICS) Vijay can be reached at vijaybhaskarreddy@hotmail.com
HTU UTH

Dedication : To my parents ‘(Late) Shri A. Guruva Reddy’ and ‘Smt. A. Rama Lakshmi’.

Satyendra Pal, CPIM
Author : Chapter 9 (Fundamentals of Inventory Management) Chapter10 (Inventory Management) Chapter 11 (Purchasing) Satyendra has been working in Supply Chain Management field for more than six years. His experience spreads across Industry, Product and Management Consulting. He is an alumnus of NITIE, Mumbai and is Certified in Production and Inventory Management (CPIM) by American Production and Inventory Control Society (APICS) Satyendra Pal can be reached at satyendra@consultant.com
HTU UTH

Dedication : To my wife ‘Poonam Pal’ for her support during the preparation of the course material.

Ismail D. Patel, CPIM
Author : Chapter 3 (Demand Planning) Chapter 5 (Capacity Management)

Tumu Venkata Krishna, CPIM
Co-Author : Chapter 5 (Capacity Management) Ismail D. Patel has 13 years of professional experience in Manufacturing and Supply Chain Management. His experience in the manufacturing area includes Production planning and control, Process control, Productivity improvement, Automation, Time Study, Method Study, Waste elimination, ISO 9000 QMS documentation and training. His experience in the Supply Chain Management area includes Vendor Selection, Vendor Management, Production part approval process (PPAP), Vendor audit and performance rating, Vendor Improvements, Acceptance Sampling plans, Master scheduling, Inventory management, Stores management, Vendor Capacity Planning, Material Requirement Planning (MRP), Kanban Scheduling. Professional courses to his credit include “ISO 9001 Internal Auditor”, “Six Sigma Black Belt”, “Technical Leadership Program (TLP) from GE (USA)”, “Strategic Cost Management”, “Activity Based Costing”, “TOC” and “Logistic and Operations Management”.

He is an Industrial Engineering Graduate, holds a Diploma in Materials Management, has done his specialization in Operations Management from (Godrej – S.P. Jain Institute of Management Science) and is Certified in Production and Inventory Management (CPIM) by American Production and Inventory Control Society (APICS) Ismail D. Patel can be reached at idp611@hotmail.com - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - HTU UTH

Venkata Krishna has 6 years of professional experience in various aspects of Supply Chain and Financial Management. He is presently working as Product Analyst with Oracle and is responsible for Financials and Financial Intelligence Tools. Before joining Oracle, he worked as Product Owner in Baan for 2 years. Prior to Baan, he worked with Strabus Software Soluitions where he was instrumental in defining and designing the ‘Production Activity and Control’ and ‘Capacity Management’ products for automobile OEMs. Venkata Krishna has done his MBA in Systems and Finance from Osmania University and is Certified in Production and Inventory Management (CPIM) by American Production and Inventory Control Society (APICS) Venkata Krishna can be reached at krishnavt@yahoo.com
HTU UTH

Dedication : To all my Teachers.

M F Adajania, CPIM
Author : Chapter 2 (Management Approaches) M F Adajania is a Senior Manager in the Production Department of Godrej and Boyce. He has 14 years of experience in the production function and is well versed with different enabling techniques viz., ISO 9001, ISO 14001. TQC, JIT, SCM, ERP, PLM having helped implement them at various stages. He is a Mechanical Engineering Graduate from College of Engineering, Pune and is Certified in Production and Inventory Management (CPIM) by American Production and Inventory Control Society (APICS) M F Adajania can be reached at mahiyar@vsnl.com
HTU UTH

Shashank Deshpande, CPIM M.V.U. Nageshwara Sharma, CPIM
Co-Authors : Chapter 1 (Business Concepts) Shashank Deshpande has 17 years of professional experience in various aspects of Supply Chain Management. He is presently working with Pidilite Industries Limited as Logistics Manager and is responsible for Finished Goods Distribution, Sales Administration and Warehouse Management. He has in-depth experience in Inbound and Outbound Logistics, C&FA Management and Inventory Control. He has successfully implemented IT enabled process improvements and ISO9002 standards. Prior to Pidilite Industries Limited, he has worked with Cadbury for 12 years, Larsen and Toubro for 3 years and 2 years with RPG Cables. He has published articles on various aspects of Supply Chain Management in “Logistics vision” an Indian Express Publication and the topics include VMI, New Products Launch Process, ABC (Activity Based Costing) of Logistics, S&OP (Sales and Operations Planning), Supply Chain Efficiencies in Retailing, etc., Shashank Deshpande can be reached at deshpi@hotmail.com - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - HTU UTH

M.V.U. Nageshwara Sharma has 8 years of professional experience in various aspects of Supply Chain Management. He is presently working as Product Analyst with Oracle and is responsible for Warehouse Management Systems (WMS). Before joining Oracle, he worked as Product Consultant for Baan for 5 years. He was instrumental in defining and designing the e-procurement and strategic sourcing products in Baan. Prior to Baan, he worked with MICO where he gained in-depth experience in Inbound Logistics and Inventory Control areas. Nageshwara Sharma had done his BE (Hons) in Metallurgical Engineering from NIT Jaipur, his PGDIE from NITIE Mumbai and is Certified in Production and Inventory Management (CPIM) by American Production and Inventory Control Society (APICS) Nageshwara Sharma can be reached at mvunsharma@hotmail.com
HTU UTH

Reviewers
Mr. M V U Nageshwara Sharma, CPIM Reviewer : Chapter 6 (Planning) Mr. Zubair H Safdar, CPIM Reviewer : Chapter 9 (Fundamentals of Inventory Management) Chapter 10 (Inventory Management) Mr. A Vijay Bhaskar Reddy, CPIM Reviewer : Chapter 11 (Purchasing) Chapter 12 (Physical Distribution) Mr. Vijay S Chawan, CPIM Reviewer : Chapter 8 (Performance Measurement) Mr. T Venkata Krishna, CPIM Reviewer : Chapter 5 (Capacity Management) Mr. Ranjit Gangadharan, CPIM Reviewer : Chapter 7 (Execution and Control) Mr. R V Ramakrishnan Reviewer : Chapter 4 (Design) Mr. C Ravindran, CPIM, CIRM Reviewer : Chapter 3 (Demand Planning)

A special mention of Thanks to Mr. Vijay S Chawan (chapter 8) Mr. Zubair H Safdar (chapters 9, 10) For their involvement in enhancing the content for the chapters indicated, in addition to the reviews.

Contents
Session 1. Business Concepts
1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 Definition of Supply Chain Elements of Supply Chain Organizational Dynamics Impact of Market Environment Manufacturing Process Choices Production Environment Financial Statements Costs Analysis Key Terminology Practice Questions Objectives of MRP II Principles and Characteristics of MRP II Objectives of Just-in-time (JIT) Concepts of Waste and Value added activity Principles and Characteristics of JIT Objectives of Total Quality Management (TQM) Principles and Characteristics of TQM TQM Impact on System Design and Deployment Key Terminology Practice Questions Marketplace – a key driver Customer Expectations Customer Relationship Sources of Demand Kinds of Demand Forecast Management DRP Logic Key Terminology Practice Questions

1
2 3 4 5 7 8 11 13 16 17

Session 2. Management Approaches

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21 23 24 24 25 28 29 32 34 35

Session 3. Demand Planning

38
39 40 41 41 41 43 51 52 53

Contents
Session 4. Design
4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 6.1 6.2 6.3 6.4 6.5 6.6 6.7 New Product Design and Introduction Process Design Manufacturing and Purchasing Lead Time Order Quantity / Lot Size / Batch Safety Stock and / or Capacity Bill of Materials (BOM) Item Master / Material Master Routing / Process Work Center / Flow Line Key Terminology Practice Questions Definition of Capacity Management Objectives of Capacity Management Resources Measuring Available Capacity Factors affecting Capacity Capacity Measuring Units Ways of determining Capacity Determining Required Capacity Capacity Requirement Planning (CRP) Resolving the Differences Key Terminology Practice Questions Strategic Planning Business Planning Production and Resource Planning Sales and Operations Planning Master Scheduling Rough-Cut Capacity Planning Material Requirements Planning (MRP)

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57 58 61 63 65 66 67 68 68 70 71

Session 5. Capacity Management

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76 76 78 79 79 79 81 81 83 86 88 89

Session 6. Planning

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95 98 100 116 117 124 126

Contents
6.8 6.9 6.10 6.11 6.12 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 7.10 7.11 7.12 7.13 7.14 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 8.10 8.11 Capacity Requirements Planning (CRP) MRP / CRP in Repetitive Production Basics of Final Assembly Scheduling (FAS) Key Terminology Practice Questions Order Processing Order Promising Push / Pull Systems Scheduling Techniques Information Docket for Execution Priority Control Production Reporting Measuring Quality Process Variation Process Capability Process Control Sample Inspection Key Terminology Practice Questions General Principles of Performance Measurements Types of Measurements Accounting Based Measures Activity Based Cost Measures Productivity Measures Other Financially Based Measures Strategic Measures Performance Measuring Model MRP / CRP Performance Measurements Key Terminology Practice Questions 137 141 143 144 146

Session 7. Execution and Control

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150 150 150 151 155 161 163 166 167 167 167 169 170 171

Session 8. Performance Measurement

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175 183 185 185 187 188 189 194 195 197 198

Contents
Session 9. Fundamentals of Inventory Management
9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9 9.10 9.11 Introduction to Inventory Inventory Classification by Categories Inventory Classification by Functions Item Costs Carrying Costs Ordering Costs Stock out Costs Capacity Related Costs Cost Balancing Key Terminology Practice Questions

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202 205 207 208 209 209 210 210 211 212 213

Session 10.Inventory Management
10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 ABC Analysis Obsolescence of Inventory Accounting Principles Physical Inventory Control Quantity Based Replenishment System Time Based Replenishment System Order Quantity Considerations Economic Order Quantity (EOQ) Methods for Order Quantity Determination Demand and Supply Uncertainty Concept of Safety Stock Concept of Service Level Key Terminology Practice Questions

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217 219 220 222 225 227 228 229 233 235 235 236 238 239

Session 11.Purchasing
11.1 11.2 11.3 11.4 11.5 11.6 11.7 Objectives and Importance of Purchasing Receiving and Analyzing notification of Need Establishing Specifications Selecting Suppliers Supplier Agreements Order Management Establishing Performance Criteria

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243 244 245 246 248 249 250

Contents
11.8 11.9 Key Terminology Practice Questions 252 253

Session 12.Physical Distribution
12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 12.10 12.11 12.12 Introduction to Physical Distribution Distribution Channels Transportation Warehousing Distribution Inventory Materials Handling Protective Packaging Order Processing and Communication Interfaces Transportation Costs Key Terminology Practice Questions

256
257 258 262 265 268 272 273 275 276 277 281 282

Solutions – Practice Questions BSCM – Sample Test BSCM – Sample Test (Solutions)

285 288 319

1

SESSION 1

BUSINESS CONCEPTS

Institute of Manufacturing Resource Management of India

Session 1 – Business Concepts

2

Organizational Fundamentals
In any manufacturing company, material flow can be basically classified into three phases. Flow of raw material from suppliers into the manufacturing facility. Flow of material within the manufacturing facility as they are processed. Flow of finished goods from the manufacturing facility to the end customers. To be responsive to the global competition, Organizations must be able to manage the complete flow of material from the suppliers, through manufacturing, till the end product reaches the customers. Hence organizations must be involved in the management of management of suppliers who provide direct and indirect material inputs, must increase the manufacturing competitiveness and must effectively manage the network of distribution systems responsible for delivery of the product to end customers. From this realization emerged the concept of supply Chain.

Definition of Supply Chain
Supply Chain : The supply chain encompasses all activities associated with the flow and transformation of goods from the raw materials stage (extraction), through to end users, as well as the associated information flows. Material and information flows both up and down the supply chain. The supply chain includes new product development, systems management, operations and assembly, purchasing, production scheduling, order processing, inventory management, transportation, warehousing, and customer service. Supply chains are essentially a series of linked suppliers and customers; every customer is in turn a supplier to the next downstream organization until a finished product reaches the ultimate end user.

What is SCM ?
Supply Chain Management (SCM) : SCM is the integration of all the activities in the supply chain to achieve a sustainable competitive advantage. Supply Chain can be broadly classified of comprising of three networks – Supplier, Firm and Distribution. The supplier network consists of all organizations that provide inputs, either directly or indirectly, to the focal firm (i.e., the purchaser). Focal firms network is involved in the conversion of input material to the output material. The distributive network consists of

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Session 1 – Business Concepts
all downstream organizations from the focal firm that ensure that the right quantity of goods is delivered to the appropriate customer location in a timely manner.

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SCM Vs Logistics
Logistics : Logistics, also called as Physical distribution, focuses on the physical movement and storage of goods and materials. Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption. Typical issues in logistics are evaluation of various transportation options, packaging options, inventory management for different channels, develop and manage networks of warehouses when needed, and manage the physical flow of materials into and out of the organization. Therefore, logistics is a subset in the broader scope of SCM.

Elements of Supply Chain
Suppliers, Producers, Distributors, Customers etc.,
Following are the key elements in Supply Chain Management: Customers Producers (includes Retailer, Distributor, Manufacturer) Suppliers Customers, Producers and Suppliers can be interconnected in the Supply chain as follows:
Manufacturing Facility Customer Customer Customer Customer Customer

Supplier Supplier Supplier Supplier Supplier Supplier Manufacturing Facility Supplier ------------Customer Manufacturing Facility

Customer ------------Supplier

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Interrelationship of the elements
A number of companies can be linked in the supply chain network. A supplier to one manufacturing facility can be a customer to another manufacturing facility and so on.. hence a number of supplier / customer relationships exist in the supply chain network. A number of intermediaries (distributors, wholesalers, retailers etc.,) form part of the supply chain network. In defining the supply chain network and the integrations between the elements, the following decisions must be made Identifying the key supply chain elements in the network to link the processes. Identifying the processes that are to be linked with the key elements. Identifying the level of integration and management control to be applied for each of the processes

Organizational Dynamics
Three phases in the evolution of SCM
Organizational structure from the fifties to the late eighties was marked by the functional silos where the decisions were made keeping in mind the narrow view of the business functions and the repercussions of the decisions on the other functions were ignored. These often created conflicting objectives within the various functions of a company. The late eighties saw the advent of Business Process Reengineering and ERP concepts. The corporate houses started analyzing the importance of aligning their business with the developments in the information technology capabilities to collaborate effectively with its stakeholders, integrate its functions and decision making and to remain competitive in the market. There are three distinct phases in evolution of SCM: Pre-1970 era : Supply Chain was not considered as a competitive unit. Companies seek more profit by maneuvering their suppliers and customers. Scientific methods like EOQ and SPC were applied. Companies attempted at Vertical integration – themselves.

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1970 – 1980 era : Holding inventory becomes key due to Oil shock TQM and JIT practice becomes popular in Japan Distribution is not yet the focus area MRP systems gain popularity in US and Europe Post 1980 era : Inventory profits dry up as inflation reigns in US manufacturers embrace JIT philosophy. JIT pushes inventory upstream. Lower setup times, lower batch quantities result in reduction in lead times and drastic improvement in customer responsiveness. Suppliers and customers considered as part of the organization network. We against them philosophy fades away. MRP systems give way to MRP II systems, ERP and then to advanced supply chain systems involving optimization.

5

Operating Environments
Business Process that connect various elements in SCM
Following are the typical business that connect various elements in the SCM: Product Development Order Fulfillment Demand Management Customer Relationship Management

Product Development Process :
As customer demands are ever increasing with respect to quality, delivery and options, organizations are increasingly finding it difficult to meet the customer’s expectations. It is often noted that customers want: Faster delivery Least price 0 % rejection rate

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Session 1 – Business Concepts
And as customer’s preference keeps changing, organizations are forced to reduce the product development lead-time as well as costs. Organizations are increasingly employing the following strategies in the Product Development Process: Integrate customers and suppliers early in the development process Reduce time to market Incorporate supply chain considerations into product design Employ Concurrent Product Development Practices

6

Order Fulfillment Process :
Organizations need to deploy appropriate production systems depending on the Product and demand environment in which they operate. Main objectives, which need to be considered, are: Production must shift from a supply/ push method of operation to a demand / pull method based on customer needs. Manufacturing process must flexibly respond to market changes with rapid changeover possibilities for mass customizations. Minimum lot sizes are planned to move toward a make to order environment. Required delivery dates rather than EOQ drive production priorities. Specific supply strategies are developed for each customer segment. Customer needs dates and requirements drive the process. Manufacturing, distribution and transportation plans are integrated. Organizations can employ following Production Typologies to accomplish the above objectives:

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Manufacturing process Choices :
Considering the demand for the items, range of products, product design, equipment, material movement, etc., manufacturing process choices can be categorized as follows : Lot/Batch/Intermittent Flow Line / Repetitive / Continuous Project Lot/Batch/Intermittent : In the batch / intermittent process, goods are produced in batches / lots. Work centres are generally organized into groups / departments having the similar equipment an skills. Ex., all milling machines in one group, all Lathe machines in one group etc., These work centers can perform a variety of operations due to the different machine’s and skills present and hence are capable of producing different products. The products move along the various machines in the work centers based on the required operations to be performed on them. These work centers hence comprise of general purpose machinery with the flexibility of making a variety of products. Control of work is managed through the individual work centers for each lot.

A

1

2

3

B

4

5

6

C

7

8

9

Flow Line / Repetitive / Continuous : In a flow line / repetitive / continuous manufacturing process, workstations are organized in the sequence needed to make the product. The product moves from one work station to the next along the defined sequence at an almost constant rate. In Work Station 1 Work Station 2 Work Station 3 Out

Institute of Manufacturing Resource Management of India

Session 1 – Business Concepts
If the products are discrete ex., automobiles, Refrigerators etc., the process is called repetitive manufacturing process. If the products are not discrete ex., gasoline, oils etc., the process is called continuous manufacturing process. The repetitive / continuous manufacturing process has the following characteristics : Setting up of a flow line is justified only if the demand of the product is large enough. Only a limited range of products can be produced in each flow line The work stations comprise of specialized machinery and tooling required for the product Since the flow of products between the work stations is balanced and is nearly constant, there is a minimal build up of work in process inventory. Project : The Project manufacturing process choice is applicable to huge complex projects. In most cases, the product is developed at a particular location with all the necessary resources and equipment moving to the product development location. Large aircrafts, ship building and construction are examples.

8

Production Environments :
On-Time Delivery is one of the key attributes in meeting customer expectations. To cater to the varying needs of different customers, operations must device the required production environment / strategy which will help in minimizing the lead times. Production environment can be classified into Design / Engineer to Order Make to Order Assemble / Package to Order Make to Stock Design / Engineer - to - Order : ETO environment caters to specific customers’ requirements. The process starts with the preparation of unique / highly customized engineering designs of the product, with the close involvement of the customer. After the designs are finalized, required material is purchased and the components and subassemblies are manufactured. Its during this process that inventories, mostly work in process are maintained. The goods are then assembled and shipped to the customer. Hence the total delivery lead time that has to be optimized in this environment to provide a faster customer service include Delivery Lead Time
Designing Purchasing Manufacturing Assembling Shipping

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Make - To - Order : In this environment, the final product is made after the receipt of the customer order. Standard components are purchased / manufactured and are usually stocked as raw material inventory. On receipt of customer orders, the product is made from these standard components and the process may include minor customizations of the design. The main activities contributing to the delivery lead time in this environment include the manufacturing time, assembling time and shipping. Delivery Lead Time
Raw material Inventory Manufacturing Assembling Shipping

9

Assemble / Package - To - Order : In this environment, the standard components and sub-assemblies are manufactured and stocked in the form of component / sub-assembly inventories. On the receipt of the customer orders, these standard components / sub-assemblies are assembled according to the configurable options specified by the customer. There is no design and product manufacturing activity involved and hence the delivery lead time includes the time to assemble and ship. Delivery Lead Time
Standard Components / Sub-assemblies Inventory Assembling Shipping

Make - To - Stock : In this environment, the products are completely manufactured and the finished goods are stocked as end item / finished goods inventory. On the receipt of customer orders, the goods are packed and shipped to the customers and hence the delivery lead time in this environment comprises of only the shipping time. Delivery Lead Time
Shipping

Finished Goods Inventory

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Demand Management Process :
Organizations have to forecast demand accurately. This will result in Synchronized flow of products and materials to customer demand Reduction of variability Organizations should combine accurate demand forecasting with marketing plans, inventory management and sales projections to gain an advantage over the competitors. Better demand management process utilizes information resources to reduce costs, improve customer service and tap into hidden value throughout the supply chain. In this process customer demand is continuously gathered, complied and renewed in order to match the organization’s supply capability with the requirements of the market. The process has the following main objectives: Demand requirements and Supply capabilities are continuously modeled using point of sale and “key” customer demand data. Market requirements and production plans are coordinated on an enterprise-wide basis. Multiple sourcing and routing options are considered at the time of receipt of the order. Demand and production rates are synchronized and inventories need to be managed.

Customer Relationship Management Process :
Organizations should maximize customer service as a means of providing focused point of contact for all customer enquiries in order to insulate them from the complexity of a large, multi-divisional corporation. Main objectives of a Customer Relationship Management process are: Customer service provides a single source of customer information, a point of contact for administration of the product / service agreement. Instant promising / availability information is available for the customer On-line/real-time access to product and pricing information assists customers with quick order placement. On-line/real-time access to order status information is available to support customer order enquiries.

Procurement Process :
Organizations maintain relationships with major suppliers, which are corporately managed; in strategic alliances while purchase order transactions become simplified and integrated with supply process.

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Main objectives of an efficient Purchase Process are: Strategic plans of suppliers and organization are aligned to focus on resources on holding down costs and developing new products. Supplier categorization and management is implemented on a corporate global basis, with purchasing in a strategic contracting role. Purchase Order transactions are integrated with supply process to improve productivity and all areas of supplier performance.

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Financial Fundamentals
Practitioners of Supply chain management need to understand the cost structure of each organization in the supply chain. Following figure depicts how the cost structure of one entity in the supply chain impacts other entities:

An important activity in the management of a supply chain is to reduce the costs in the entire supply chain network. Therefore, one needs to be acquainted with the fundamental aspects of accounting.

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Session 1 – Business Concepts
Accounting Cycle : Major steps of Accounting cycle are: Analyze Business Transactions Record entries in Journal Post entries to Ledger Prepare a Trial Balance Prepare Adjusting entries and Post to the Ledger Accounts Prepare Adjusted Trial Balance Prepare Financial Statements ▫ Profit and Loss Statement ▫ Balance Sheet Statement Closing entries are made

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Balance Sheet
It is a financial statement that summarizes organization’s financial position at a specific point of time. It’s a numeric illustration of the balance between a firm’s assets on one hand and its liabilities and owner’s equity on the other hand in a given point of time.

Assets:
The resources the business owns. Assets are listed in the order of their liquidity – the speed which they can be converted into cash. Types of Assets are: Current Assets – Assets that can be quickly converted into Cash. Ex: Inventory Fixed Assets – Assets that are held or used for a period longer than a year. Ex: Plant and machinery. Intangible Assets – Assets that do not exist physically but have a value based on rights or privileges they confer on the firm. Ex: Brand Value.

Liabilities:
What a firm owes, its obligations Liabilities are listed in the order that they are scheduled to be paid. Types of liabilities are: Current liability ▫ Debts to be re-paid within a year or less. ▫ Ex: Accounts payable, Income Tax payable, Current portion of long term debt Long term liability ▫ Debts that need not to be paid within a year ▫ Ex: Mortgages, bonds and long-term loans.

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Owner’s equity :
The owners investment after all obligations have been met.

Accounting equation :
Assets = Liabilities + Owner’s Equity

The Income Statement
This summarizes the firm’s revenues and expenses and shows total loss or profit during a specified accounting period. This is also called as Profit and Loss Statement or Earnings Statement.

Revenues :
All of the amount earned by a firm from all sources (e.g., selling goods, providing services, investing on stocks etc.,). Gross sales – Total value of all goods and services sold during accounting period. Net Sales – The adjusted value after subtracting sales returns, sales allowances and sales discounts.

Expenses :
Cost of Goods Sold ▫ Beginning inventory plus net purchases less ending inventory Operating Expenses ▫ All other business Costs ▫ Selling Costs – Marketing related activities cost ▫ General Expenses – Costs for managing the business

Net Profit or Loss :
The profit earned (cash surplus) or the loss (cash deficit) suffered by the organization during an accounting period, after all expenses have been deducted from revenues.

Financial Analysis
Financial Analysis enables SCM practitioner to analyze the cost structure of the supply network.

Institute of Manufacturing Resource Management of India

Session 1 – Business Concepts
Some of the financial ratios widely used are: Liquidity ratios Profitability ratios Activity ratios Leverage ratios Valuation ratios

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Liquidity Ratios :
Liquidity Ratios are used to examine the firm’s ability to meet short-term cash outflow needs. Current Ratio: indicator of company’s ability to pay it’s short term liabilities Current Ratio = current assets/current liabilities Quick (acid test) Ratio: Measures ability to pay off short term obligations excluding inventory Quick (acid test) Ratio = (current assets-inventory)/current liabilities Inventory to net working capital: Measure of inventory balance, shows if balance can be threatened by unfavorable changes in inventory. Inventory to net working capital = Inventory/(current assets-current liabilities) Cash Ratio: Shows how much of the current obligations can be paid from cash or near-cash assets. Cash Ratio = (cash + cash equivalents)/current liabilities

Profitability Ratios :
Profitability Ratios are ratios used to measure the profitability of the firm. Net Profit Margin: shows how much after tax profits are generated by each dollar of sales. Net Profit Margin = Net profit after taxes/net sales Gross Profit Margin: Indicates the total margin available to cover other expenses beyond cost of goods sold, and still yield a profit. Gross Profit Margin = (sales-cost of goods sold)/net sales Return on Investment (ROI): a measure of a company’s efficiency, it shows the return on all assets under it’s control. Return on Investment (ROI) = Net profit after taxes/total assets Return on Equity (ROE): measures rate of return on the book value of shareholder’s total investment in the company. Return on Equity (ROE) = Net profit after taxes/shareholder’s equity

Institute of Manufacturing Resource Management of India

Session 1 – Business Concepts
Earnings Per Share (EPS): Shows the after-tax earnings generated for each share of common stock. EPS = (Net profit after taxes-preferred stock dividends) / (Average number of common shares)

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Activity Ratios :
Activity Ratios are ratios used to measure the efficiency with which the firm conducts its business. Inventory Turnover: measures number of times that average inventory turned over during a period of time. Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory (inventory of finished goods) Accounts Receivable Turnover: the average length of time it takes to collect the sales made on credit. Accounts Receivable Turnover =Sales/Average Accounts Receivable (Sales/Accounts receivable) Days (Inventory/Receivable) Outstanding: measures number of days each is outstanding. Days (Inventory/Receivable) Outstanding =365/Inventory Turnover; 365/Accounts Receivable Turnover Total Asset Turnover: a measure of the utilization of all the firm’s assets. Total Asset Turnover = Sales/total assets during period

Leverage Ratios :
Leverage Ratios are ratios used to measure firm’s ability to meet its long-run debt service obligation. Debt-to-assets ratio: measures extent to which borrowed funds have been used to finance the firm’s operations. Includes long term, short-term debt. Debt-to-assets ratio = Total debt/total assets Debt-to-equity ratio: Provides another measure of the funds provided by creditors vs. funds provided by owners. Debt-to-equity ratio = Total debt/total stockholder’s equity

Valuation Ratios :
Valuation Rules are used to describe the way the market values the firm and the way that certain characteristics are related to the value of the firm. • Price per Earnings Ratio = Current market price per share/after tax earning per share

Institute of Manufacturing Resource Management of India

Session 1 – Business Concepts

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Key Terminology
01) 02) 03) 04) 05) 06) 07) 08) 09) 10) 11) 12) 13) 14) 15) 16) 17) 18) 19) 20) 21) 22) 23) 24) 25) 26) 27) 28) 29) 30) 31) 32) 33) Activity Ratios Assets Assemble / Package – to – Order Balance Sheet Customer Customer Relationship Management Distributors Design / Engineer – to – Order Delivery Lead Time Demand Management Expenses / Costs Flow line / Repetitive / Continuous Manufacturing Income Statement Logistics Lot / Batch / Intermittent Manufacturing Liabilities Liquidity Ratios Leverage Ratios Manufacturer / Producer Make – to – Order Make – to – Stock Order Fulfillment Owner’s Equity Product Development Project Manufacturing Procurement Profit and Loss Profitability Ratios Revenues Supplier Supply Chain Supply Chain Management Valuation Ratios

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Practice Questions – Session 1
Question 1 : Which of the following are elements of a supply chain ? A) B) C) D) Customers Manufacturers Distributors All the above

Correct Answer is: -----------------------------------------------------------------------------------------------------------Question 2 : Which of the following is not true about a supply chain : A) B) C) D) A number of companies can be linked in the supply chain network A supplier to one manufacturing facility cannot be a customer to another manufacturing facility A number of intermediaries (distributors, wholesalers, retailers etc., ) form part of the supply chain All the above are true

Correct Answer is: -----------------------------------------------------------------------------------------------------------Question 3 : Strategies for the product development process to meet customer expectations does not include ? A) B) C) D) Decoupling customers and suppliers early in the development process Reducing time to market Incorporating supply chain considerations into the product design Employing concurrent product development practices

Correct Answer is: -----------------------------------------------------------------------------------------------------------Question 4 : The manufacturing process choice in which the work centers are organized into groups / departments having the similar equipments and skills is : A) B) C) D) Flow line Repetitive Intermittent Project

Correct Answer is: ------------------------------------------------------------------------------------------------------------

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Question 5 : Which of the following is not a characteristic of repetitive / continuous manufacturing process ? A) B) C) D) Setting up of a flow line is justified only if the demand for the product is large enough Broad range of products can be produced in each flow line Work stations comprise of specialized machinery and tooling required for the products Since flow of products between the workstations is balanced, there is minimal build up of inventory

Correct Answer is: -----------------------------------------------------------------------------------------------------------Question 6 : Delivery lead time in a Engineer-to-order environment consists of : A) B) C) D) Only Designing Designing and Manufacturing Designing, Purchasing, Manufacturing, Assembling and Shipping Designing, Manufacturing, Assembling and Shipping

Correct Answer is: -----------------------------------------------------------------------------------------------------------Question 7 : In which of the following environments, there is no / least involvement of the customer in the product design : A) B) C) D) Engineer to order Make to order Make to stock Assemble to order

Correct Answer is: -----------------------------------------------------------------------------------------------------------Question 8 : Manufacturing, Assembling and Shipping constitute the deliver lead time for which of the following environments: A) B) C) D) Engineer to order Make to order Assemble to order Make to stock

Correct Answer is: ------------------------------------------------------------------------------------------------------------

Institute of Manufacturing Resource Management of India

Session 1 – Business Concepts
Question 9 : Which of the following accounting equation is correct : A) B) C) D) Assets = Liabilities – Owners’ Equity Assets = Liabilities + Owners’ Equity Owners’ Equity = Assets + Liabilities – Cost of Goods Sold Owners’ Equity = Assets + Liabilities + Cost of Goods Sold

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Correct Answer is: -----------------------------------------------------------------------------------------------------------Question 10 : Inventory Turnover Ratio is : A) Cost of Goods Sold / Average Inventory B) Average Inventory / Cost of Goods Sold C) (Cost of Goods Sold + Net Sales) / Average Inventory (Cost of Goods Sold – Net Sales) / Average Inventory D) Correct Answer is: ------------------------------------------------------------------------------------------------------------

Institute of Manufacturing Resource Management of India

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SESSION 2

MANAGEMENT APPROACHES

Institute of Manufacturing Resource Management of India

Session 2 – Management Approaches

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Management Approaches - Overview
In today’s world there are plenty of approaches to run a business. Some focus on quality, some on customers, some on HR. But of all these solutions, three approaches stand out as the most encompassing, covering the entire gamut of a company’s operation. You could not term them as solutions to your current problems, for they are more than solutions, they are a way of life. These are MRP-II, Just in Time (JIT), Total Quality Management (TQM). Judiciously applied in tandem these approaches can create wonders. In this session we will touch upon the salient features of each of these, and in the end learn which approach is more suitable under a particular environment.

Manufacturing Resource Planning (MRP II)
Objectives
The base block of any company is the strategic business plan. The strategic business plan incorporates the plans of marketing, finance, and production. Marketing must agree that its plans are realistic and achievable. Finance must agree that the marketing plan is financially viable, and production must agree that it can meet the desired demand. The manufacturing planning and control system is a master game plan for all functions of the company. This fully integrated planning and control system is called “manufacturing resource planning-II” or MRP-II. “II” to differentiate it from MRP i.e. Materials requirement planning. The MRP-II activities in the below diagram can be roughly broken up in to three parts. The front end : These activities consist of production planning and Master production schedule. These are basically the plans on which your whole system will be based. The engine : These consist of Materials requirement planning (MRP), Detailed capacity planning (CRP), and its result detailed material and capacity plans. The Back End : It consists of the shop floor control system and the vendor plans. This is where the action takes place, and all the detailed planned is brought into fruition. Monitoring is very important and any deviation has to report “up” to keep priorities current.

Institute of Manufacturing Resource Management of India

Session 2 – Management Approaches

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BUSINESS PLAN

SALES AND OPERATING PLAN M’KT PLAN PROD’N PLAN

RESOURCE OK

NO

YES
SALES PLAN MASTER SCHEDULE

MATERIALS REQUIREMENT PLAN

RESOURCE OK

NO

YES
PURCHASING PROD ACTIVITY CONTROL

PERFORMANCE MEASURES

Process flow Feedback flow Closed loop MRP

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Session 2 – Management Approaches

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Principles and Characteristics
Integrated Planning Structure
Fully integrated: The MRP-II system is intended to be a fully integrated system that works from top down and has feedback from bottom up. Taken up with simulations it is a top management-planning tool. MRP-II requires all functions to interact through this system, any change in plan in any of the functions requires validation through MRP-II.

Cross-functional Integration
Coordinate between functions: MRP-II is fully integrated and cross functional in nature. MRP-II provides coordination between marketing and production. All the functions viz. Marketing, Finance and Production agree on a workable plan, which is the production plan. Marketing and production must work together on a daily or weekly basis to adjust the plan as changes occur. Generally this kind of changes is made through MPS, however care must be taken to respect the time fences when any changes are made to meet the customer demand. The nature of changes could be from changing the batch size to order cancellation or delivery dates.

Closed Loop – Feedback
Feed back loop: As seen from the diagram MRP-II provides feedback from within its various parts, making it closed loop. At every stage resource availability, through modules like, Rough cut capacity planning (RCCP), Capacity resource planning (CRP) is checked. Any deficit or inability to make the priority true calls for a change in plan or some alternate means to meet the demand.

What – if Simulation
Simulations: Another ability of MRP-II system is a what-if analysis. This tool can be used early in the planning stage to find out what resources are required beforehand. Forewarned being forearmed. This can be done by simulating the desired conditions and getting to know the effect of pre-supposed conditions down the line on say a critical resource like material, or a work center or for that matter on capacity.

Institute of Manufacturing Resource Management of India

Session 2 – Management Approaches

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Just – in – Time (JIT)
Objectives
As a philosophy initially it is difficult to understand what is JIT. JIT is linked with the idea of high velocity manufacturing. Basically if factory is a pipe and raw material is water, which you want to flow from one end to the other, then our aim is to reduce the time gap of payment to the supplier on one end and receipts from the dealer at the other. Hence we need to move materials and assemblies through the pipeline more and more quickly. Which basically means reducing the diameter of the pipe. With a narrower pipe we can have the same rate of shipments if we accelerate the velocity of “water” through the pipe. A faster throughput time also allows us to be more responsive to any change in customer demands. Ideally we would like to have the “diameter of the pipe” as low as possible, in the ultimate situation a single piece flow made instantaneously. Till we as mortals reach that goal we have to pass through some intermediate phase. As we go on reducing we invariably come across constraints. First that constraint must be resolved before we proceed to do any further reduction. We must therefore employ methods that determine the location and cause of constraints. Once we remove that constraint we can safely move ahead on our journey. This “continuous improvement” is an important arm of JIT. Embedded in this endeavor is “elimination of waste”. So basically JIT philosophy is nothing but making as much as possible with as little resources. To achieve that, various methods like pull systems, work cells, flexible manufacturing, etc are used in JIT.

Concepts of Waste and Value added Activity
Before we go on to have a look at the various principles and characteristics of JIT, we must understand what constitutes wastes, understanding wastes in manufacturing is understanding the core of JIT. Waste can be defined as any activity that does not add value for the customer. It is the use of resources in excess of theoretical minimum, be it manpower, material, equipment, time, space etc. Waste can be excess inventory, setup times, inspection, material movement etc.

Institute of Manufacturing Resource Management of India

Session 2 – Management Approaches
Shingeo Shingo, one of Japan’s founding fathers of improved manufacturing techniques, lists his Famous Seven Wastes. They are… ◊ Waste of over production…. Making products which are not needed in the immediate future. This leads to locked inventory, extra material handling, ageing, and can be very costly. Waste of waiting….. These are of two kinds, that of the operator and that of the material. Waste of transportation… Moving and storing components add cost not value, and hence should avoided as far as possible. Waste of stocks… Any inventory costs money to carry. Waste of motion… Waste is added if the method of working by the operator needs unnecessary motions like searching for tool, walking, are all wastes of motion. Waste of making defects… This not only costs money but also interrupts the flow of production. Waste of processing itself… When the product should not be made or the process should not be used. The best process is the one that consistently makes the product with an absolute minimum of scrap in the quantities needed.

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◊ ◊ ◊ ◊

◊ ◊

Added to this is the waste caused due to poor product specification and design. It is the responsibility of the management to establish policy for the market segment, which the company wants to serve. A mistake in this fundamental decision can sound the death knell of the company even if its other functions are working efficiently.

Principles and Characteristics
Due to application of JIT and its philosophy, a way of doing things differently than previous one emerges, these give rise to many elements which are a part of JIT environment. Remember these elements are not the ends in itself, but rather the means in achieving the JIT philosophy. Broadly these can be grouped as follows.

Flow Manufacturing
Flow manufacturing: Repetitive manufacturing is the production of discrete units on a flow basis. In these types of systems machines needed to make a unit are arranged close

Institute of Manufacturing Resource Management of India

Session 2 – Management Approaches
together and the work flows from one stage to another. These are suitable for repetitive manufacturing type of environment where the process stages are fairly constant.
WORKSTATIONS INPUT 1 OUTPUT 2 3 4

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Process Flexibility
Flexibility: In changing times where it is difficult to forecast customer tastes it is desirable to have systems where the company can react swiftly to changes in volume and mix of their product. To achieve this operators and machine must be flexible. The single piece flow in JIT aids in achieving flexibility and to achieve machine flexibility quick change over are essential. Quick change over means shorter set up times. Shorter setup times have the following advantages : ◊ ◊ ◊ ◊ ◊ Reduced order quantity Reduced queue and manufacturing lead time Reduced WIP Improved quality Improved process flow.

Quality at Source
Quality at source: Means doing it right for the first time and if something goes wrong stopping the process and fixing it. People become their own inspectors, personally responsible for the quality of what they produce.

Continuous Improvement
Continuous Improvement: The ultimate goal of JIT is to eliminate waste the question is “How can we use JIT to continuously improve quality delivery and cost?” The answer is as simple as the philosophy of JIT. We must learn to economically manufacture one less at a time. The starting point is the question “Is the inventory grater than one?”, if the answer is yes then what stops us from making the same quality material with one less in stock, and so we proceed on our journey till we remove bottle necks like uneconomical process, quality problems, maintenance problems, setup problems, until we reach the end of the journey i.e. zero inventory. This approach unleashes the power of continuous improvement since as we go on we expose layer after layer of constraints.

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Session 2 – Management Approaches

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Supplier Partnerships
Supplier improvements: In JIT supplier is not somebody to be squeezed to get the lowest price or the best bargain. Those are important, but the approach is to treat suppliers as partners in the journey of improvement. The result is long term commitment, trust and shared vision. The JIT Company could go as far ahead as whetting the suppliers operation and suggest beneficial improvements, on the other side the supplier could suggest beneficial changes in the product. This type of mutual working results in a winwin type of situation.

Employee Involvement
Employee involvement: A successful JIT environment can only be achieved by the cooperation and involvement of everybody in the organization. Instead of receiving orders the employee takes responsibility in improving processes, correcting deviations, suggesting changes, doing preventive maintenance. An important aspect in a JIT environment is flexibility, which brings up the question of training. De-skilling of operation can also help.

Total Productive Maintenance
Total Productive Maintenance: The general tendency for maintaining a machine is to adopt a strategy of “If it ain’t broke don’t fix it”. This leads to disruption in production, defective parts, delayed deliveries and added costs. The next stage is “Preventive maintenance” where using some statistical means or historical data failure of machine parts is predicted and before that actually happens you go ahead and replace that part e.g. A bearing or a tool. Anyway it is important in the sense that JIT means minimum inventory and little buffer is available. The concept of “Total productive maintenance” is one stage above total preventive maintenance it is “preventive maintenance plus continuing effort to adapt, modify, and refine equipment to increase flexibility reduce material handling and promote continuous flow”

Pull System
Pull systems: In the general way of working one work center produces to keep it in stock and the subsequent work center takes material from stock. In the pull systems the first work center will not make any thing until it gets a signal from the subsequent work center, this signal could be a “kanban” card an empty trolley or location. Basically it is a two bin, fixed order quantity replenishment system.

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STOCK W/C A W/C B W/C A Empty container – signal to make W/C B

Work Cells
Work cells: Many companies do not have the volume to justify setting up a line layout. The layout used is a functional type of layout. These involve long queues, high WIP, and considerable material handling. Such type of layout can be improved using commonly used process flow. Like if say even in a batch type environment if it is detected that 80% of the flow is in a particular sequence then you can arrange most of your machines in that particular sequence to mimic flow manufacturing, the rest can form a separate unit. These unique arrangements of machines that resemble flow manufacturing in a batch shop type of environment is known as work cells and has all the advantages of flow manufacturing.

Total Quality Management (TQM)
Objectives
In today’s world customer is king. You can ignore the king at your own peril. Gone are the monopolistic days where customer would take whatever the manufacturer dishes out. Today he wants goods on his own terms and that too if he sees value in it. Ultimately that means doing things that add value to the product, from customer’s viewpoint. Which means “meeting or exceeding customer’s expectation” (Juran’s definition), or “conformance to requirement” (Crosby’s definition). These are only some of the words that define quality. And why “Total”? Total means bringing quality into every aspect and not just in product or manufacturing, be it in sales or even a lowly operator punching challans. Every activity has to be viewed from customer’s perspective and hence devoid of waste, and ‘filled ‘ with quality--- “TOTAL”. Quality does not mean “best” in any sense, but “best” for certain customer conditions. As a matter of fact JIT and TQM go hand in hand together. They are two sides of the same coin, one uncovers problem and the other solves it. It would be foolish to implement JIT

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Session 2 – Management Approaches
without TQM. There is no sense to arouse a lion if you cannot make it disappear. TQM is the process that makes the lion of constraints disappear. You can implement TQM without JIT but experts agree that it is not as effective. Implementing JIT alone will give you paises whereas implemented together will give you rupees. The sum of the power of both these processes is greater than their individual parts.

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Principles and Characteristics
Problem Solving Tools
So as we have seen in the last section TQM is a way of overcoming obstacles. Now the principle behind problem solving is simple, basically it consists of four steps ◊ ◊ ◊ ◊ Measure Record Analyze Do

This cycle is also known by many other names like Shewart cycle (PDCA) etc. The cycle can be used via the following statements: ◊ ◊ ◊ ◊ We will take no measurements without recording the results. We will not record results without analysing them. We will not analyse results without acting on them. We will not act without measuring the results of our actions.

Institute of Manufacturing Resource Management of India

Session 2 – Management Approaches
This cycle provides the formal method for improving every aspect of our business based on evidence and analysis. It can be used in all areas of the company. Now there are some formal, time tested methods for gathering evidence and analysis, and are in the region of identifying a problem and analyzing, and they are known as “The Seven Quality Tools”.

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A brief description of each is as follows – Flow Charts… It is possible to create a flow chart of any process or operation to show how work happens. This is particularly useful for quality improvement because when you can see what happens in a process you can begin to improve the process. Check Sheets… One of the problems of identification is that we rarely know where to begin, we all tend to have ideas but there is little hard evidence and we act on hunches rather than on evidence. The action cycle says that we shall not measure without recording and check sheets provide an easy way to record and analyse your results. A check sheet is basically a form that you fill in with the results of your observations. It must include who collected the data as well as the time it was collected. Check sheets also act as the start to the analysis process and can help to structure your data prior to the analysis process Pareto Principle…This is the classic 80:20 rule that many of you will be familiar with i.e. in broad terms: 80% of your installation problems concerns will come from 20% of the jobs, 80% of your concerns will come from 20% of your operators (or operations or products), 80% of your profits will come from 20% of your customers. Identification and analysis via Pareto enables us to separate the 'the vital few' from the 'trivial many' and to take action for the best returns. Pareto is probably the most powerful tool you can find for making a hero of yourself in quality improvement.

Institute of Manufacturing Resource Management of India

Session 2 – Management Approaches
Cause and Effect Charts…These are also known as Fishbone Diagrams or Ishikawa Diagrams and are used to list possible causes and to rate thei

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