Transcript Narrative Information Processing in Electronic Medical Report

Introduction to Supply Chain
Management
Designing & Managing the Supply Chain
Chapter 1
Byung-Hyun Ha
[email protected]
Outline
 Introduction
 Global Optimization
 Uncertainty
 Case: Meditech Surgical
Introduction
 Investment and interest in supply chain
 Economy issues
• Fierce competition in today’s global market
• Introduction of products with shorter and shorter life cycles
• Heightened expectations of customers
 Technology issues
• Advances in communications and transportation technologies
Introduction
 Supply chain (logistics network)
 The system of suppliers, manufacturers, transportation,
distributors, and vendors that exists to transform raw materials to
final products and supply those products to customers
 That portion of the supply chain which comes after the
manufacturing process is sometimes known as the distribution
network
Introduction
 Goal of supply chain management
 Supply chain management is concerned with the efficient
integration of suppliers, factories, warehouses and stores so that
merchandise is produced and distributed:
• in the right quantities
• to the right locations
• at the right time
 In order to
• Minimize total system cost
• Satisfy customer service requirements
Logistic Network
Sources:
plants
vendors
ports
Regional
Warehouses:
stocking
points
Field
Warehouses:
stocking
points
Customers,
demand
centers
sinks
Supply
Inventory &
warehousing
costs
Production/
purchase
costs
Transportation
costs
Inventory &
warehousing
costs
Transportation
costs
Strategies for SCM
 All of the advanced strategies, techniques, and
approaches for supply chain management focus on:
 Global optimization
 Managing uncertainty
Global Optimization
 Issues
 Why is it different/better than local optimization?
 What are conflicting supply chain objectives?
 Why is global optimization hard?
 The supply chain is complex network
 Different facilities in supply chain network have different and
conflicting objectives
 The supply chain is a dynamic system
• The power structure changes
 The system varies over time
• e.g. Demand and cost variation due to seasonal factors, trend,
advertising and promotion, competitors’ pricing strategies, …
Global Optimization
 Tools and strategies
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Decision support systems
Inventory control
Network design
Design for logistics
Cross docking
Strategic alliances / supplier partnerships
Supply contracts / incentive schemes
Sequential vs. Global Optimization
 Sequential optimization
Procurement
Planning
Manufacturing
Planning
Distribution
Planning
Demand
Planning
 Global optimization
Supply Contracts/Collaboration/Information Systems and DSS
Procurement
Planning
Manufacturing
Planning
Distribution
Planning
Demand
Planning
Conflicting Objectives in the Supply Chain
 Purchasing
 Stable volume requirements / flexible delivery time
 Little variation in mix / large quantities
 Manufacturing
 Long run production / high quality
 High productivity / low production cost
 Warehousing
 Low inventory / reduced transportation costs
 Quick replenishment capability
 Customers
 Short order lead time / high in stock
 Enormous variety of products / low prices
Uncertainty
 Why is uncertainty hard to deal with?
 Matching supply and demand is difficult
 Forecasting doesn’t solve the problem
 Inventory and back-order levels typically fluctuate widely across the
supply chain
 Demand is not the only source of uncertainty:
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Lead times
Yields
Transportation times
Natural disasters
Component availability
 Forecasting
 Forecasting is always wrong
 The longer the forecast horizon the worse the forecast
 End item forecasts are even more wrong
Uncertainty
 Supply Chain Variability
Manufacturer Forecast
of Sales
Retailer Orders
Retailer Warehouse
to Shop
Actual
Consumer
Demand
Production Plan
Time
Uncertainty
 What Management Gets...
Consumer
Demand
Production Plan
Time
Uncertainty
Volumes
 What Management Wants…
Production Plan
Consumer
Demand
Time
Uncertainty
 Dealing with uncertainty
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Pull systems
Risk pooling
Centralization
Postponement
Strategic alliances
Collaborative forecasting
Key Issues
 Issues span
 Strategic, tactical, operational
 What are the tradeoffs and issues?
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Distribution network configuration
Inventory control
Supply contracts
Distribution strategies
Integration and partnerships
Procurement strategies and outsourcing
Product design
Information technology
Case: Meditech Surgical
 Case overview
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Intent – diagnosis of supply chain
Business overview
Supply chain
Production planning
What’s wrong?
How to fix it?
Meditech Surgical
 Background
 Endoscopic surgical instrument maker
• Minimally invasive surgery
 Parent company: Largo Healthcare Company
• Spun off 3 years ago
 Primary competitor: National Medical Corporation
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Market created in early 80’s, rapidly growing
National sells to physicians
Meditech sells to material managers as well as physicians
Customer preferences change slowly
 Old products continually updated
• Replaced with new product introductions
 Compete based on product innovations, customer service, cost
Meditech Surgical
 Problems
 New production introduction needs to be flawless
 Consistently fail to keep up with demand during initial order
 Customers wait over six weeks to have orders delivered
 Dan Franklin, manager of Customer Service & Dist.
 Recognizing growing customer dissatisfaction
Distribution
 Central warehouse
 Two primary channels to hospitals
 Domestic dealers
• Order and receive products from multiple manufacturers
• Independent and autonomous entities
 International affiliates
• Subsidiaries of Largo Healthcare
• Similar to domestic dealers from Meditech’s point of view
Internal Operations
 Assembly
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Manually intensive
Using component parts in inventory
Assembly line with a team of cross-trained production workers
Cycle time for assembly of a batch of instruments
• 2 weeks
 Lead time for component parts
• 2-16 weeks
 Packaging
 Using machine
 Sterilization
 Cobalt radiation sterilizer, about 1 hour
Operation Organization
Production Planning & Scheduling
 Broken down two parts
 Assembly & component parts order based on monthly forecast
 Packaging & sterilization based on finished goods inventory level
 Forecast
 Annual: during the fourth quarter of each fiscal year
 Monthly: using annual forecast broken down proportionately
• At the beginning of each month: adjustments of forecast
 Planning of assembly
 Using monthly demand forecasts
 transfer req. =
month forecast – finished goods inventory + safety stock
 Approved throughout the organization after 1 to 2 weeks
Production Planning & Scheduling
 MRP systems
 Planning assembly schedules and parts order
 Calculation may be run several times each week
• Notification of change at least 1 weeks before
 Packaging & sterilization process
 Order point/order quantity (OP/OQ)
Parts Inventory
2 – 16 weeks
Assembly
2 weeks
Bulk Inventory
push
pull
Packaging &
Sterilization
1 week
FG Inventory
High Inventory Level of Finished Goods
 In case of representative stable product
Var. in Production vs. Var. in Demand
 Variation in
production
schedules
often
exceeded
variation in
demand
New Product Introduction
 Poor service level
 Poor forecasting?
 Panic ordering?
 And high FG inventory
Poor Service Level
 What is going on?
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Demand is quite predictable
Usage in hospitals is quite stable
Market share moves slowly over time
With each new product, dealer must build inventory to fill pipeline
 Why did Meditech think demand was unpredictable?
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Poor information systems
No one looked at demand
No one had responsibility for forecast errors
Tendency to shift the blame
Built-in delays and monthly buckets in planning system
Amplifier in planning system
Poor Service Level
 What to do?
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Recognize that demand is stable and predictable
Establish accountability for forecast
Eliminate planning delays and/or reduce time bucket
Alternatively, put assembly within pull system and eliminate bulk
inventory
HW#1
 All homework should be prepared by handwriting
and be submitted at the next class
 Discussion questions 5, 7, 8, 9 (p. 13)
 Case discussion question 3 (p. 21)