Transcript Document

EFFECTIVE INVENTORY AND SERVICE
MANAGEMENT THROUGH PRODUCT AND
PROCESS REDESIGN
HAU LEE
Presented by:
I.Esra Buyuktahtakin
OUTLINE
• Introduction
– Product Proliferation
– Some concepts in product/process design
– Delayed Product Differentiation
• Models
– Built-to-order
– Built-to-stock
• Applications
• Conclusion
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Introduction/Product Proliferation
Product Proliferation
• Different requirements of different markets
• Expansion of the customer base
Multiple versions of the same product
Product variety is increasing
• HP workstations have 500,000 options (RAM cards, video cards,
graphic cards, monitors, disk drives, etc..)
• GM cars have 20,000,000 versions (colour, interior combinations,
drive train configurations, and option choices)
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Introduction
Product Proliferation:
Rapid Technology Changes and Increased Globalization
Rapid increase in product variety
High Variation
Uncertainty
Difficulty in Demand Forecasting
High Inventory Investment and Poor Customer Service
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Introduction
To deal with product
proliferation
Investment on
• information technology
• decision support systems
• transportation modes
Product and process Redesign
Obstacles to implement
p&pr
• engineers generally do not
consider inventory and service
dimension
• design requires close
collaboration among different
functional areas within a
corporation
• design changes requires
investment
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Introduction
Redesigning the process to improve logistic efficiency
DFM(Design for manufacture):
The designers’ consideration of the organization’s manufacturing
capabilities and customer expectations when designing a product.
Concurrent Engineering: is the bringing together of engineering design
and manufacturing personnel early in the design phase.
• DMF and concurrent engineering concepts emphasize the
importance of considering more than functionality and performance
of a product in its design stage.
Delayed product differentiation is a key concept for gaining control of
inventory and service in a global market
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Introduction/Literature
•
•
•
•
•
•
What is Delayed Product Differentiation?
Delaying the differentiation point in which a product gains its
specific identity
Increase the flexibility to meet uncertain and changing demands
Related concepts with Delayed Product Differentiation
design for localization: the strategy to meet the different local
requirements
design for customization: the strategy to meet the needs of
different market segments
design for flexible manufacturer
part commonality
part modularity
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Introduction/Scope of the paper

This paper observes product and process
design from the delayed product
differentiation aspect.
! Two inventory models(built-to-order,
built-to-stock)presented in this paper
provide the product developer an insight of
inventory and service dimensions of their
designs.
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Model
Built-to-Order
• Final products are built
on demand
• Intermediate product is
customized according to
customer demand
Built-to-stock
• Finished products are
built to stock
• Immediate delivery of
finished products are
critical
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Built-to-Order
T-t
Assumptions and notations:
T=total production time
t=point of product differentiation
• intermediate inventory~periodic
review order-up-to-S
• review period= 1 time unit
• customer orders~ i.i.d.
D(r) : demand in r time units
F(x/r)= Pr{D(r) <= x}
• demands are never negative
• orders arrive at the beginning of
each time unit
•
customize the products in the
intermediate inventory
•
unmet orders are backlogged
A built-to-order inventory model
• first-come, first-serve
inventory position= inventory on
hand+WIP- backlog
W= waiting time in the generic prod.
W <= t
Y = response time
Y =T - t + W
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Model/Built-to-Order
2
1
Event(W>x)={demand of
immediate(t-x)time units >S}
An example:
Let t=4 ,x=1 and S=10
t-x = 3 immediate time units
demand
Total demand=10, W=x=1
total demand=11>S, W =2>x
1
S=10
Time = -2
Order=4
Inventory on hand=3
4
1
2
4
Inventory on hand=0
1
2
3
Time = -1
Order=3
3
Time = 0
Order=3
Order=4
Inventory on hand=0
3
Thus:
3
3
3
1
Time = 1
Inventory on hand=0
PrW  r PrDt  r   S  F S / T  r 
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Model/Built-to-Order
Two service measures:
i)A target E(Y)
ii)A target reliability(probability)of response
time being less than or equal to the target R
• S can be found from both of these service
measures
• In the model the first one is used
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Model/Built-to-Order
First Service measure:
PrW  x Prw  x Prw  x  1 F S / t  x  F S / t  x  1
E( Y )  ET  t  W   T  t  EW   T  t   PrW  x x
t
x 0
t
t
t 1
x 0
x 0
r 0
 PrW  x x   F S / t  x  F S / t  x  1 x   1  F S / t  r 
t 1



t
 
E( Y )  T  t   1  F S t  r  T   F S r
r 0
Hau Lee
r 1
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Model/Built-to-Order
Second Service measure:
The probability that the response time to customer
orders in a time unit is less than or equal to some
target R time units
PrY  R PrW  R  T  t   F S / T  R 
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Model/Built-to-Order
to investigate the effects of delayed product differentiation
let
H(t):expected holding cost per unit time for
intermediate inventory
g(t):unit holding cost rate for intermediate inventory
g(t) is nondecreasing function
• WIP-before=WIP-after when t is delayed
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Model/Built-to-Order
F(S-x/t)=Pr{D(t)<=S-x}= Pr{inventory level>=x}
Prinv.level  x Prinv.level  x Prinv.level  x  1

 
 F S  x t  F S  x 1t

 F S  x t  F S  x  1t  x
S
x 0
S
H (t )  g (t ) F ( x | t )
r 1
t 1
E( Y )  T  t   1  F S / t  r 
r 0
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The effect of the changing t on
holding cost and S
t
r 1
S
H (t )  g (t ) F ( x | t )
 
S
 
S
0
 dr  0
dS / dt  0
H (t )  g (t )  F ( x | t )dt
dS / dt  0
 
F S t   f S t   dS / dt
r 1
0
 
E( Y )  T   F S r
 
F x t / t  0
 
 
S
S


dH / dt  g t   F S t  dS / dt   F x t / t  dx  g' t   F x t dx
0
0


Hau Lee
g' t   0
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Delayed Product Differentiation at the Disc-drive
manufacturing
• Long lead time
• in process inventory~shorten lead
time
• two steps of manufacturing process:
generic & customization
• first part is short, second part is
long
• high levels in-process inventory is
required for high reliability
• coupon boards insertion
• no significant value added~no
increase in inventory cost
Disc drive manufacturing example illustrated
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Another Built-to-order Application
4 Steps of manufacturing:
1.fabrication of application-specific integrated circuits
2.building sheet metal,power supply, can and cable building
3.integration of base memory, floppy drive, hard drive and the opr.system
4.assembly of power cord, keyboard, mouse, monitor and documentation
To implement delayed product differentiation:
• standardization of base memory, floppy drive, hard drive and the
operating system
• the point of differentiation is deferred from the end of the second stage
to the end of the third stage
• the number of units held in inventory to support the same response time
target decreases
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Model/Built-to-Stock
Assumptions & Notations:
T: total manufacturing time
t: differentiation point
T-t: time units for customization
• Finished goods inventory
• Inventory and backorder costs are
identical for all end prod.i
• Periodic review
• Review period= 1 time unit
• Demands are independent across
time units
• Demands for different end products are correlated
ik: covariance of demands for end product i and k in a time unit
i / i is constant for all i
• Unmet demands are backordered
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Model/Built-to-Stock
Question:
• How to characterize the operational
performance such a system as a function of
t, T, the requirement fill rate, and the
demand distribution of the end products.
• Based on this function the costs and the
benefits of the point of product
differentiation t is investigated.
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Model/Built-to-Stock
Two actions based on the inventory status of end product i:
Allocation decision for the items completed
in generic production process
Decision for the amount of new
items to begin production
Equal fractile allocation rule
Allocation of the each product i so that an equal fractile point or same
service level is achieved by each of the end product i on an appropriately
chosen demand distribution
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Expected total system
demand over T periods

N
E I  A  R T   
i
i

2
i
j 1
i
Ri   i /  j
j
N

2
Var I  R  t       T  t  
i
i
jk
j
 j 1 j

j k

total system demand
variance
over t periods
Variance of end product j
over T-t time units
•Based on these two moments,firstly service level is
determined,then
the value of the Si is determined to satisfy the target
service level.
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The effect of delayed product differentiation on Var( Ii )



2
Var I  R  t       T  t  
i
i
jk
j
 j 1 j

j k

2



2
Var( I ) / t  R        2
i
i
j
jk
j


j k
 j

2
 jk   j k
 j
j
2
   jk
j k

   j
 j





2




2
 



 jk  
  j
j k
2  j
  1  0
 

2
i






j







 j



1
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Centralized system in Schwarz paper
• The second model presented in the Schwarz paper is a
special case of this model.
• N independent and identical retailers with common
standart deviation in a time unit, .

Var Ii  t / N  T  t  j
• The larger N, the greater the reduction in variance from
delayed product differentiation.
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Application/Built-to-Stock
Delayed Product Differentiation by DC localization
•
Printers manufactured in U.S. and
distributed to DCs in Europe, U.S.
and the Far East
• Localization
Packaging printer with the
appropriate power supply module
with the correct voltage and plugs
and a manual with the appropriate
language
• Long lead times for the non U.S.
DC~ High levels of safety stock
• Inventory savings from the reduction of the safety stock
• Savings from pipeline inventory
• Unlocalized printer is less bulky and localization materials are not bundled
• “Local content” and “local manufacturing” makes a company more marketable
However: Need to develop a local supply base of localization materials
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Cultural and organizational barriers
An example for the inventory savings gained from DC
localization
Factory localization
DC localization
t:1 week T: 5 week
t is pushed very close to T
Ki : safety stock factor
Demands for different country versions of the printer in Europe are
independent
Safety stock level for end product i:
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Application/Built-to-Stock
Delayed Product Differentiation at the Printer manufacturing
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Application/Built-to-Stock
To evaluate the effectiveness of
commonality;
• Inventory savings for the parts
• Material costs of parts
• Investment cost for the reengineering
change
• Inventory savings for finished goods
should be assessed.
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Conclusion
• Inventory and customer service are critical
issues in the competitive market
• Design engineers should consider logistic
issues besides the functionality,
performance and manufacturability of a
product
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Conclusion
• Product and process changes are powerful
means to gain control of inventory and
service in the competitive market
• Inventory models have a lot to offer
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THANK YOU…
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