Supply Chain Optimisation

Lecture outline
 Introduction to supply chain management

and aggregate planning
 Targeting tools with pinch analysis
Production & Supply Chain  Graphical targeting technique

 Algebraic targeting technique
 Economy evaluation
Tutor: Prof Ir Dr Dominic Foo

FIChemE, FASc, FHEA, ACPE, CEng, PEng, MIEM, AAE
Copyright@Dominic Foo UNM Summer School 2021 Lecture 1 - 2
Definition Important supply chain elements

 Supply chain – system of organizations, people, activities,  A supply chain consists of the following items:
information, and resources involved in moving a product or
service from supplier to customer.  Procurement
 Supply chain management (SCM) – the management of the  In-bound logistics
flow of goods and services, involves the movement and
storage of raw materials, of work-in-process inventory, and  Parts inventory
of finished goods from point of origin to point of  Manufacturing
consumption.
 Finished goods inventory
 Fulfillment (customer’s order to delivery)
 Out-bound logistics
http://data-magnum.com
Copyright@Dominic Foo UNM Summer School 2021 Lecture 1 - 3 Copyright@Dominic Foo UNM Summer School 2021 Lecture 1 - 4
A good Another
example example –
- iPhone Dell
Supply chain for N95 mask Some recent trends in SCM

1. Visibility
2. Manufacturing factory for the future – distributed
3. The internet of things
http://cerasis.com/2015/05/04/supply-chain-
www.afpm.org management-trends/
Aggregate planning Aggregate planning
 Pertains to aggregate decisions rather than stock-  The main objective of the aggregate planner is to identify the
keeping unit level decisions. following operational parameters:
 Formal problem statement – Given the demand  Production rate  Subcontracting
 Workforce  Backlog
forecast for each period in a planning horizon, determine
 Overtime  Inventory on hand
the level of production, inventory & capacity for each
 Machine capacity
period that maximise the profit over the planning
 Beneficial to plants with significant demand fluctuations.
horizon.
 A good example - paper mills which face seasonal demand
 Maximising profit involves the fundamental trade-
with typical peaks in spring & autumn. Aggregate planning
offs on the following 3 costs:
is most useful to paper manufacturers because mill capacity
 Capacity (regular time, overtime, subcontracted) is very expensive.
 Inventory
 Backlog/lost sales
Aggregate planning Different production strategies

 Aggregate planners must make decisions when  Level strategy:
faced with options such as:  Constant production (output) rate, i.e. stable workforce
and machine capacity
 Should a plant invest in large capacity & maintain a big
workforce to produce enough to satisfy demand in peak  Inventory levels fluctuate over time:
inventory build-ups in low-demand periods - to take care of
periods? anticipated higher future demand
 Should a plant have a low capacity & a small workforce backlog in high-demand periods - to be carried over to periods of
but incur costs of carrying inventory from off-peak anticipated lower future demand
periods to peak periods and carrying backlogs from high-  Adopted when:
demand periods to slow periods? inventory holding & stockout/backlog costs are relatively low
capacity (workforce) costs and capacity-changing (hiring/layoff)
costs are relatively high
 Disadvantage: possible accumulation of high inventories
and backlogs
Different production strategies
 Chase strategy:
 Philosophy – to keep the inventory levels constant as far as possible
& allow the production rate to fluctuate.
 Achieved by:
 hiring and laying off workers
 varying machine capacity depending upon the demand.
 Advantages of the chase strategy
 low inventory levels
Graphical targeting technique
 no stockouts
 Adopted when:
 inventory holding and stockout/backlog costs are high.
 costs for changing workforce (hiring=layoff) & varying capacity are (Singhvi & Shenoy, 2002;
relatively low.
Singhvi et al., 2004)
 Disadvantages – unstable & uncertain conditions for workers &
varying machine capacity.
A hypothetical example Composite curves (CC) plot for

chase strategy 16380 16880
6
Time Predicted Cumulative 14620

Month 5
period, t demand (units) demand (units)
12860 Ending
1 January 1600 1600 4
Time (month)
inventory: 500
2 February 3000 4600 7800
3
3 March 3200 7800
4600
4 April 5060 12860 2
5 May 1760 14620 1600
1
6 June 1760 16380
1000
(Singhvi et al., 2004)
0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000
Starting inventory: 1000 Quantity (units)
CC for level strategy (with stock-out) CC for level strategy (w/o stock-out)
16380 16880
6
 Our main focus for the following sessions
5  Why no stock-out:
Stock-out
(backlogs)
Ending
 Company policy for better image
4
Time (month)
inventory: 500  Sole supplier

3
7800  Aggregate planning with pinch analysis:
 Graphical targeting technique
4600
2  Algebraic targeting technique
2646.7
1600
1
1000
0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000
CC for level strategy (w/o stock-out) Th is im ag e can no t c ur re ntl y be di sp lay ed .
4
Time (month)
3
Working session
2
2965
1
1000
0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000
Why algebraic method?
 Scaling problems: when the quantities of process
sources or sinks are of different magnitudes
 Computational effectiveness: rapid & accurate
answers (with computers)
 Interaction with software: algebraic technique is
Algebraic targeting technique implemented on spreadsheet – ease for interaction
with other softwares
(Foo et al., 2008)
Principle of cascade analysis Infeasible cascade

Previous net inventory, It-1 Time, t Demand, Dt Production, Pt Pt – Dt Net inventory, It ࢚
(month) (units) (units) (units) (units)

(units)
Starting
Time period 0 inventory 1000
Production, Pt Demand, Dt
(t)
1 1600 0 -1600 -600 -600.00
Current net inventory, It
2 3000 0 -3000 -3600 -1800.00
Time period 3 3200 0 -3200 -6800 Largest -2266.67

Production, Pt+1 Demand, Dt+1
(t + 1) production
4 5060 0 -5060 -11860 lost -2965.00
5 1760 0 -1760 -13620 -2724.00

Net inventory, It+1
6 1760 0 -1760 -15380 -2563.33
Feasible cascade Adjust to desired ending inventory
Time, t Demand, Dt Production, Pt Pt – D t Net inventory, It Demand, Dt Production, Pt Pt – D t Net inventory, It
Time, t
(month) (units) (units) (units) (units) (units) (units) (units) (units)
(month)
Production
0 1000 0 remains 1000
unchanged
1 1600 2965 1 1600 2965
2 3000 2965 2 3000 2965
3 3200 2965 3 3200 2965
4 5060 2965 0 We need an 4 5060 2965 0

(PINCH) ending (PINCH)
inventory of
5 1760 2965 1205
500 units,
5 1760 Desired
suggest a ending
6 1760 2965 2410
solution.
6 1760 500 inventory
Inventory analysis with

Working session
Grand Composite Curve (GCC)
Plotting of GCC from CC Plotting of GCC from cascade
6
Time, t Net inventory, It
Ending
(month) (units)
inventory: 500
5
0 1000
Pinch
4
Time (month)
1 2365
2095
2 2330 3
Inventory
3 2095
2 2330
4 0
2365
(PINCH) 1
5 250 Starting inventory:
1000
6 500
0 500 1000 1500 2000 2500
Inventory (units)
Plant shut down scenario Impact on inventory
6 1900 6 1900 6 1900 6 1900
5 460 5 460 5 460 5 460
4 20 4 20 4 20 4 20
2580 5820
3 2580 3 2580 3 3
4880
2 1640 2 1640 2 2 4880
3440
1 200 1 1 1 3440
3440
Minimum 1000 2000 3000 1000 2000 3000 1000 2000 3000 4000 5000 1000 2000 3000 4000 5000
production rate (a) (b) (c) (d)
(Foo et al., 2008) (Foo et al., 2008)

Economic analysis Revisit the hypothetical example
 Profit for 1 unit of product = Sale price (CP) minus
operational costs.
 Operational costs include the following Item Cost
 Material
 Inventory holding Sale price $40/unit
 Stock-out/backlog Raw material cost $4/unit/month
 Hiring & training
 Layoff Inventory cost $2/unit/month
 Regular time
Labour cost $5/unit/month
 Overtime
 Subcontracting
 Total profit = unit profit x total production
Problem solving with Excel Solver References

 Chopra, S. and Meindl, P. (2001). Supply Chain Management.
Pearson Prientice Hall, New Jersey.
 Foo, D. C. Y., Ooi, M. B. L., Tan, R. R. and Tan, J. S. (2008). A
Heuristic-Based Algebraic Targeting Technique for
Aggregate Planning in Supply Chains, Computers and
Chemical Engineering, 32(10): 2217-2232.
 Singhvi, A. and Shenoy, U. V. (2002). Aggregate planning in
supply chains by pinch analysis. Transactions of the Institute
of Chemical Engineers, Part A. 80: 597-605.
 Singhvi, A., Madhavan, K. P. and Shenoy, U. V. (2004). Pinch
analysis for aggregated production planning in supply
chains. Computers and Chemical Engineering. 28: 993-999.

Supply Chain Optimisation

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Lecture outline

 Introduction to supply chain management

Production & Supply Chain  Graphical targeting technique

Tutor: Prof Ir Dr Dominic Foo

Copyright@Dominic Foo UNM Summer School 2021 Lecture 1 - 2

Definition Important supply chain elements

Supply chain for N95 mask Some recent trends in SCM

Aggregate planning Different production strategies

A hypothetical example Composite curves (CC) plot for

Time Predicted Cumulative 14620

inventory: 500  Sole supplier

CC for level strategy (w/o stock-out) Th is im ag e can no t c ur re ntl y be di sp lay ed .

(Foo et al., 2008)

Copyright@Dominic Foo UNM Summer School 2021 Lecture 1 - 22

Principle of cascade analysis Infeasible cascade

(month) (units) (units) (units) (units)

Time period 3 3200 0 -3200 -6800 Largest -2266.67

5 1760 0 -1760 -13620 -2724.00

2 3000 2965 2 3000 2965

3 3200 2965 3 3200 2965

4 5060 2965 0 We need an 4 5060 2965 0

Inventory analysis with

Plant shut down scenario Impact on inventory

6 1900 6 1900 6 1900 6 1900

5 460 5 460 5 460 5 460

production rate (a) (b) (c) (d)

(Foo et al., 2008) (Foo et al., 2008)

Problem solving with Excel Solver References

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