Supply chain management - Essay Example

? Supply Chain Management Introduction Supply chain management is managing a connected business model involving the product and the services that the end consumer requires. It looks over the raw materials and their movement throughout the process, along with the inventory and the final finished goods movement from the inventory to the consumers and thus it ties the entire process from the raw materials to the consumption point. It includes the designing of supply chain activities along with the planning, executing, controlling and finally monitoring the supply chain and the overall aim is to increase the net value of the company. A competitive supply chain will add to a stronger infrastructure and leverage the corporation in logistics as well match demand and supply, even allowing corporations to manage operations globally. (Zuckerman, 2002) Supply chain is thus a cross functional job which involves raw materials and their movements along with the internal processes. Some companies outsource their supply and thus reduce their costs along with the ownership of raw materials as well as the distribution of goods. Companies who outsource may be looking for more satisfied customers. However supply chain management whether outsourced or not is also the ability to build a relationship of trust among the different partners in the process. This improves the visibility of the inventory and the speed of the movement of goods. There are also many models that are proposed for supply chain management. Some of these include the SCM model and the SCOR model. The activities also have different levels such as strategic, operational and tacit levels. Different companies may have different forms of supply chain management models. (Chopra & Meindl, 2001) MRP and JIT There are two kinds of systems broadly categorized: push and pull. A pull system is one in which production is done only on the basis of demand. A vending machine is an example of a pull system which only dispenses bottles as per required and when the signal is given to it, that is, the coin in the slot hole is received. A push system on the other hand is a pre-planned system and not a reactive system like the aforementioned. Therefore if needs and demand changes, a push system cannot respond to the changes quickly because it has already predetermined demand and supply. A push system however can meet the requirements of a system which needs large inventory which would be difficult for a pull system to manage. Therefore push systems are good for demand that doesn’t depend on conditions that is, it is ‘independent’ and thus they are dependable sources especially when uncertainty exists in the environment. (Hirano, 2009) Just in time inventory (JIT) is one of the models of inventory and it follows the pull system that can react quickly to demand changes. It is a production strategy which aims to improve business models by increasing their return on investment (ROI) by reducing the time and costs associated with inventory. The process is built around the importance of signals which exist between processes and which will signal the production process when to produce the next part. The signals also called ‘Kanban’ are simply visual and they show shelf space etc. JIT inventory management can lead to improvement in the organization of manufacturers and enhances quality, efficiency and investment. The focuses are on the quality, flow of products and the employees. The process is such that depletion in stock will signal personnel to order in new stock and overall inventory reduction is achieved which is the main purpose of this style of management. (Dennis, 2002) This will lead to lower costs of warehousing; however JIT has other elements involved such as the fact that it is not independent of the other proponents of the system. Manufacturers have tried to better this process over the years by forecasting better such as using methods such as trailing. JIT seems to be an appropriate plan for companies which produce standardized goods which will have a constant demand. The system is designed to reduce waste and lead time and it is believed that if inventory is reduced then the entire operations will become better as managers will focus on more problematic areas of the company. It will also respond to changing needs and will have good quality output. However, cases show that it works better if the process of operations is stable. (Vollmann & al, 2005) A few main characteristics of JIT inventory are as follows: Few materials and levels and standardized parts with a modular design Simple process design and reduction in size along with improvement in quality. Rapid flow of products, small sizes and paperless, visual system with close relationships with vendors along with lower processing and reporting costs. Labor is flexible and there is greater commitment and involvement between leadership. Good information system High quality logistics Predictable lead times Economic order quantity (EOQ) (Hirano, 2009) Manufacturing resource planning (MRP) is a push method of inventory management. It is often used in operational units and financial management along with answering open-ended questions in supply and demand. This model also ensures that products are available when they are needed, be it a product or its components. The process consists of a master production schedule (MPS) which is list of items which are needed and what time they are needed. It also requires a bill of material (BOM) which is a listing of all the input that is needed in the process and in what amount and how everything will fit together, including an item master file which is the data about the inventory along with the lead time and active order status. MRP process actually calculates the requirements of each product and subtracts what stock already exists and thus finds out the net requirements that will either be produced or purchased. Thus MRP process reduced the need to keep a safety stock and is usually used for customized parts which are highly valued and their demand and supply is easily known. The precise and accurate timing is the aim behind this MRP process. (Cross & Richey, 1998) MRP and JIT compared MRP is a supply driven system related to production control and it pushes products in order to meet future needs presented on a master schedule which calculates the requirements well into the future. JIT on the other hand is a demand driver system and materials are made on work centers as soon as a demand is signaled. Since JIT doesn’t allow for pushing of products visibility in JIT is less than in MRP system where forecasting allows for visibility. JIT also works better in standardized products which can be produced repetitively because they are listed on the master schedule which is updated day to day. There isn’t a need to change the product line altogether because of this daily update unlike in an MRP system which requires batch production and not mass production and custom oriented products need to be made for which the factory makes a product and each product is different than the other. MRP process also protects each part of the process of operations from being disrupted and therefore it is a more proactive process as compared to JIT approach. JIT causes the problems and kinks in the system to be more visible and thus they can be solved better since inventory management isn’t an issue. Thus it is more reactive than proactive and takes care of issues in the production line as they occur which is not always the best option. JIT also relies heavily on the employees on the shop floor especially with regards to maintenance, inventory, customer service and quality. These are important to the firm whether they deliver services or products and this need to be considered when a company is deciding its strategy especially because political and socioeconomic conditions are subject to change. However, MRP system is more related to the system than the people and as long as the system is being followed, it will work regardless of the employees. The main sacrifice a firm has to make in JIT management system is the inventory and capacity. However in MRP system the stock of extra products allows the system to be continuous and work all the time including when it is not needed. JIT thus only works when it is needed and since products are produced only when they are needed, the system might be ridden with bottlenecks and disrupts the smooth flow of the operation. Therefore utilization is low; however this seems to be beneficial because unnecessary utilization is also a waste. JIT allows companies to cut down not only on their inventory but also their whole production line. (Schenk, et al., 2010) Surplus products are reduced however if there is a problem in the system then the entire system of production comes to a standstill which is a problem that MRP doesn’t face. An example that depicts the problem of JIT inventory is the problem that occurred in Hurricanes Katrina and Rita in 2005. Companies had to shut down their refineries due to the excess capacity and low demand. The other refineries remained in operation and fulfilled the supply. However, since the refineries that shut down thinking that there would be an excess and they wanted to operate in JIT caused the economy to suffer because in 2005, the hurricanes ruined many refineries and there was a shocking downfall in supply and excess demand. Had these refineries not shut down their operation, gas prices wouldn’t have fluctuated and demand and supply wouldn’t have been completely out of balance. MRP processes also require a complex logistics force and a strong computer base so that the entire system can be monitored. JIT just functions basically with the simple signals between processes and thus it is more transparent, visual and simpler overall. JIT is also not volume based. (Adithan, 2007) JIT is also a more decentralized approach to operations management which isn’t the case with MRP system or any other system for that matter. When bad products or parts come up in the system, the entire procedure in JIT has to be halted in order to continue and thus many companies like Toyota have considered abandoning this process since they tried it and had to stop their process almost hourly by the end of it. However, sometimes firms become so used to the stops and halts that they stop having any negative effect on the overall process. (Monden, 1994) A hybrid system For a competitive system in the market place of today, a hybrid system of both the aforementioned model will work best for firms to survive. Revolutions have allowed for changes to be continuously made in the production system world. Firms were using MRP push model initially and then they started looking towards pull systems like JIT. But over the years, both their limitations have led the belief that neither MRP nor JIT can be applied to every firm and every industry. Effectiveness can increase due to this integration by utilizing the best features of both the models and accommodating them. This will lead to a better balance and limit the waste in the entire process. The main aim of a hybrid solution is to get the “right materials to the right place at the right time.” They both work in opposite directions, one being push and one being pull however research shows that they can work together in a successful manner. MRP can be used in every industry be it repetitive or custom and JIT is usually used for repetitive functions. However, JIT considers the shop floor extremely important which would have to be integrated in the MRP model. This hybrid model has been seen in assembly to order firms where the raw material has to be converted from an input into a semi-finished product and then the next point is controlled by the demand of the consumer. Earlier steps are controlled by a push type procedure where as later steps are controlled by a pull type procedure. This hybrid model is also found in electronic manufacturing firms. (Louis, 1997) Bibliography Adithan, M., 2007. Process planning and cost estimation. New Delhi: New Age International (P) Ltd. Chopra, S. & Meindl, P., 2001. Supply chain management : strategy, planning, and operation. s.l.:Prentice Hall. Cross, W. & Richey, A. M., 1998. The Prentice Hall encyclopedia of model business plans. New Jersey: Prentice Hall. Dennis, P., 2002. Lean production simplified : a plain language guide to the world's most powerful production system. New York: Productivity Press. Hirano, H., 2009. JIT implementation manual : the complete guide to just-in-time manufacturing. Boca Raton: CRC Press. Louis, R. S., 1997. Integrating Kanban with MRPII : automating a pull system for enhanced JIT inventory management. Portland: Productivity Press. Monden, Y., 1994. Toyota production system : an integrated approach to just-in-time. London: Chapman & Hall. Schenk, M., Wirth, S. & Muller, E., 2010. Factory planning manual : situation-driven production facility planning. New York: Springer. Vollmann, T. E. & al, e., 2005. Manufacturing planning and control systems for supply chain management. New York: McGraww-Hill. Zuckerman, A., 2002. Supply Chain Management. s.l.:Capstone Pub. Read More