Development of SCM concepts and Definitions - key decision areas strategic. Supply Chain Management and Key components, External Drivers of Change. Dimensions of Logistics - The Macro perspective and the macro dimension - Logistic system analysis.
UNIT-II:
SOURCING STRATEGY: Manufacturing management - make or buy decision - capacity management - Materials Management - choice of sources - procurement planning.
UNIT-III:
DISTRIBUTION STRATEGY: Choice of Market - network design - warehouse designed operation and distribution planning - transportation-packaging.
CHANNELS OF DISTRIBUTION - CUSTOMER SERVICE STRATEGY: Identification of Service needs, cost of services - revenue Management.
Supply Chain Community
Raw Material Supply -> Manufacturer -> Distributors -> Wholesalers -> Retailers -> End User
Reverse Logistics
Table of Contents
1.1. INTRODUCTION
1.2. CONCEPT OF SUPPLY CHAIN MANAGEMENT
1.3. PROCESS VIEW OF A SUPPLY CHAIN
1.4. PUSH-PULL THEORY OF A SUPPLY CHAIN
1.5. PRINCIPLES OF SUPPLY CHAIN
1.6. KEY DECISION AREAS OF SUPPLY CHAIN MANAGEMENT - EXTERNAL DRIVERS
1.7. DIMENSIONS OF LOGISTICS
1.1. INTRODUCTION
The term 'Supply Chain Management' was more into usage in the early 1990s; prior to that time, it was referred to as 'Logistics Management' or 'Operations Management'.
The terminology was changed due to the chain of operations/procedures started expanding with the increase in the business and trade, as a result of the New Industrial Policy 1991.
It gave scope to free trade and enhanced many investments, including private investments and foreign investments.
Today's business is not only facing the challenges of demand, supply, cost and tastes & preferences, but also the changing dynamics of technology, new production methods, processing procedures, fast delivery, transportation limited human resource.
The short life cycles of products and heightened expectations of customers have forced the business organizations to invest and focus their attention on "Supply Chain".
This phenomenon combined with some more factors such as technological advancement, digitalization, mobile communication, internet and quickest delivery has paved the way to continuous evaluation of supply chain and the strategies to manage them effectively.
The pressure from competitive market is increasing with more preferences and demand for speed delivery from the consumers.
New information technology has affected the methods of production, reducing their making time and calling for:
Superior Quality
High Flexibility of Production Systems
Heavy cost reduction
Reducing time to market the goods
Quick delivery to customer
Feedback on delivery pattern
The above-discussed areas are getting focused by all the producers/manufacturers to make the supply chain more effective and qualitative with the changing competitive business environment.
1.2. CONCEPT OF SUPPLY CHAIN MANAGEMENT
The basic underlying concept of supply chain management was aptly remarked by Napoleon centuries ago as, "An army marches on its stomach".
There is another saying, on the same lines, that goes as 'Amateurs talk strategy and professionals talk logistics'.
A supply chain encompasses the business activities of companies, that are needed to design, make, deliver and make use of a product or a service.
A business completely depends on its supply chain right from production to delivery to the ultimate user.
Definitions of Supply Chain
"A supply chain is the alignment of firms that bring products and services to market"
According to Ganeshan and Harrison, "A supply chain is a network of facilities and distribution operations that perform the functions of procurement of materials, transformation of these materials into intermediate or finished products and the distribution of these finished products to customers".
The following definition was developed and used by the Global Supply Chain Forum:
"Supply Chain Management is the integration of key business processes from end user through original suppliers that provides products, services and information that add value for customers and other stakeholders".
Chopra and Meindl (2001): "A supply chain consists of all stages involved directly or indirectly in fulfilling a customer request.
The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers and customers themselves".
Significance of Supply Chain Management
Flow of Goods & Services
Effective use of Information
Reducing Level of Inventory with the Manufacturers
Achieving Success in Supply & Delivery
An effective supply chain management primarily focuses on the efficient integration of manufacturers, factories, warehouses, stores, transport, suppliers and distributors who distribute in right quantities in the right locations and a right time, so as to minimize cost burden and ultimately satisfy the customer demands and needs.
1.4 An overall view of a Supply Chain
Supply Chain: Raw Material Supplier -> Factory -> Distribution -> Retail -> Customer
In today's business environment, a supply chain has to overcome the challenges of technological transformation, digitalization, short cycle for processing and quick delivery time to the end user.
A supply chain to be effective in today's scenario, should have a firm hand on all the following aspects:
Information Management
Technology Management
Material Handling
Transportation
Operations
Inventory Management
Warehousing Management
Objectives of a Supply Chain Management
The functions that are more often cited to plan and execute are:
Stage 4: Customer Order Cycle - [Customer-Retailer]
Hence, a cyclical view of a supply chain is essential while considering operational decisions because it clearly specifies each operation , for example, when setting up information system to support system to support supply chain operations.
Depending on the transaction, the sub process can be applied to the appropriate cycle.
When a customer shop online at Flipkart, they are part of the customer order cycle- with the customer as the buyer and the Flipkart as supplier.
In contrast to this, when Flipkart orders books from a distributor to replenish its inventory, it is a part of replenishment cycle-with Flipkart as a buyer and the distributor as the supplier.
Within each cycle, the goal of the buyer is to ensure product availability and to achieve economies of scale in ordering.
1.4 PUSH-PULL THEORY OF A SUPPLY CHAIN
Push/Pull View of Supply Chains
Procurement, Manufacturing and Replenishment Cycles
Customer Order Cycle
Push Processes
Pull Processes
Customer Order Arrives
Push-Pull theory of supply chain process is useful in considering strategic decisions relating to supply chain designing, from a global view point of how a supply chain process relate to customers order.
The relative proportion of push-pull process can have an impact on the supply chain performance in a business enterprise.
In this, processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull) or in expectation of a customer order (push).
Pull (Reactive): In a pull-based supply chain, manufacturing is demand driven, co-ordinating with the external customer demand rather than a forecast lead-time reduction occurs as the variabilities are better monitored in pull-based supply chain management.
Pull-based system are often difficult to implement, when lead times are so long that it is impractical to react to demand information.
Under pull-based strategy, execution is initiated in response to a customer order.
Push (Speculative): In a push-based supply chain, it takes longer time to react to the changing market place in a push-based supply chain, production decisions are usually based on long-term forecasts.
Under this strategy, a supply chain management experiences increased transportation cost, high inventory levels and high manufacturing costs.
Features of Pull-Push Strategies
Basis
PULL
PUSH
Objective
Maximize service levels
Minimize cost
Lead Time
Short
Long
Complexity
Low
High
Processes
Order fulfillment
Supply chain planning
Focus
Responsiveness
Resource allocation
1.5 PRINCIPLES OF SUPPLY CHAIN
Based on the relevance of supply chain in the business operations, Andersen consulting provided the needed guidance espousing "Seven Principles" of Supply Chain Management.
If a firm/company consistently and comprehensively follows these seven principles, it results in a competitive advantage.
The seven principles as articulated by Andersen are as follows.
1. Segmentation of customers based on their service needs: Companies traditionally have grouped customers by industry, product, or trade channel and then provided the same level of service to everyone within a segment.
Effective supply-chain management, by contrast, groups customers by distinct service needs--regardless of industry--and then tailors services to those particular segments.
2. Customize the supply chain management network: In designing their Supply Chain Management network, companies need to focus intensely on the service requirements and profitability of the customer segments identified.
The conventional approach of creating a "monolithic" Supply Chain Management network runs counter to successful supply-chain management.
3. Listen to signals to market demand and plan accordingly: Sales and operations planning must span the entire chain to detect early warning signals of changing demand in ordering patterns, customer promotions, and so forth.
This demand-intensive approach leads to more consistent forecasts and optimal resource allocation.
4. Differentiate product closer to the customer: Companies today no longer can afford to stockpile inventory to compensate for possible forecasting errors.
Instead, they need to postpone product differentiation in the manufacturing process closer to actual consumer demand.
5. Strategically manage the sources of supply: By working closely with their key suppliers to reduce the overall costs of owning materials and services, supply-chain management leaders enhance margins both for themselves and their suppliers.
Beating multiple suppliers over the head for the lowest price is out, Andersen advises.
"Gain sharing" is in.
6. Develop a supply-chain wide technology strategy: As one of the cornerstones of successful supply-chain management, information technology must support multiple levels of decision making.
It also should afford a clear view of the flow of products, services, and information.
7. Adopt channel-spanning performance measures: Excellent supply-chain measurement systems do more than just monitor internal functions.
They adopt measures that apply to every link in the supply chain. Importantly, these measurement systems embrace both service and financial metrics, such as each account's true profitability.
The above-discussed principles are not easy to implement, until and unless they develop a functionally oriented thinking about how companies organize, operate and serve customers.
The organizations that preserve and build a successful supply chain have proved convincingly that one can get goodwill from customers and enjoy growth in the business.
1.6 KEY DECISION AREAS OF SUPPLY CHAIN MANAGEMENT - EXTERNAL DRIVERS
Effective supply chain management system needs simultaneous improvement in both customer service levels and the internal operating efficiencies of the business enterprises in a supply chain.
Customer service at its most basic level means, consistently high-order fill rates, high on-time delivery rates and very low rate of products returned by the customers, for whatever may be the reason.
From the internal efficiency point of view, it is emphasized on the rate of return on the investments in inventory and other assets and they find ways to lower their operating and sales expenses.
Supply chain management involves a basic pattern, as each supply chain has its own market demand and operating challenges and yet many issues remain essentially in every case.
Hence, a business organization in a supply chain has to take the following decisions individually and collectively in the following five areas.
Key Decision Areas in SCM
1. Production:
This function has to answer the questions such as (i) What products does the market demands? (ii) How much of products are to be produced and when?
These questions can be answered only on designing a master production schedule which takes into account the plant capacities, equipment maintenance, workload balancing and quality control.
2. Inventory:
The questions such as, (i) what inventory should be stocked at each stage in a supply chain? (ii) How much inventory should he held as raw material, semi-finished goods or finished goods?.
The primary purpose of inventory decision is to act as a buffer against uncertainty in a supply chain.
However, holding inventory can be expensive, so a decision is to be taken to the extent of optimal inventory levels and re-ordering points.
3. Location:
(i) Where should be the facilities for production and inventory storage be located?(ii) Where from we can obtain most cost-efficient locations for production and inventory storage? (iii) should the existing facilities are enough or to build a new one?
All these decisions pave way for smooth flow of products for delivery to the final consumer.
4. Transportation:
Movement of goods from production place to place of consumption is an essential element in the functional area of a supply chain.
Questions such as, (i) How an inventory should be move from one location to another location? (ii) Air freight and road ways are faster but very expensive.
At the same time, water transport is less expensive, but takes long time to travel, deliver and sea transport is subject to natural calamities.
5. Information:
For a better co-ordination and a quality decision, information should be properly used and managed.
(i) Which is the relevant information for the supply of goods? How much information is to be collected and shared?.
With accurate information, the businessman can take quality decisions and can improve the strength of their supply chain.
1.7 DIMENSIONS OF LOGISTICS
Logistics is a part of supply chain process that plans, implements and control the efficient flow and storage of goods, services and related information from the point of origin to point of consumption in order to meet customer's requirements.
The Macro Dimensions of Logistics
The macro dimensions of logistics emphasize on the economy as a whole.
The following are some dimensions from macro perspective:
Logistics has a significant relationship with overall economy.
Cost of business logistics increasing.
Transportation is the largest percentage of logistics costs.
Logistics adds value to a product.
Place utility - moving goods to points where demand exists.
Time utility - moving goods to points at a specific time.
Allows for economic development and specialization.
Affects land values due to increased accessibility.
The Micro Dimensions of Logistics
The micro dimensions of logistics establishes the relationship between logistics and other departments in an organization.
Length of the Production Run: Balance economies of long production runs against increased costs of high inventories
Supply interfaces: Stocking adequate supplies to ensure uninterrupted production
Protective packaging: Principal purpose is to protect the product from damage during transit
Interfaces with Sales and Marketing:
Sales forecast: Sales forecast will decide quantities estimated to be transported and stored
Product: Size, shape, weight, volume of the product impact storage, transportation and handling
Price: Larger shipments means cheaper transportation rate, therefore shipment sizes should be customized to the carrier's vehicle capacity
Promotion: Logistics function must be aware of any promotional activities so that it can plan accordingly.
Logistic System Analysis
Logistic system analysis is a process of collecting factual data, understanding the process involved, identifying problems and recommending feasible suggestions for improving the logistics system functioning.
Logistics analysis involves the use of numerous quantitative techniques on the part of the organization such as network design, forecasting, inventory control and warehousing.
The purpose of the analysis is planning and managing of the efforts to measure the logistics impact of the changes proposed.
Logistics system analysis consists of integration of inventory, location, transportation, packaging activities and information flow for the purpose of managing an effective physical movement of outbound and inbound goods and services in a competitive environment.
The complete cost and system approach is developed for planning and managing the various logistical functions that prevail within the organization.
QUESTIONS
Short Answer Questions
1. Supply Chain Management (SCM)
2. Logistics Management
3. Key drivers of SCM
4. Push & Pull Strategy
5. Principles of SCM
6. Dimensions of Logistics
7. Transportation and Information
8. Logistics System Analysis
Long Answer Questions
1. Define Supply Chain Management and its objectives
2. Enumerate the key areas of decision making in a supply chain.
3. Distinguish between Push-Pull Strategy.
4. Bring out various micro and macro dimensions of Logistics in SCM.
5. Explain the concept of supply chain management.
6. Discuss on various external drivers of change in a supply chain.
Multiple Choice Questions
1. It is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores to produce and merchandise the goods at right time in a right location.
(c) Reducing working capital (d) Improving revenue.
3. Increasing asset utilization will result in
(a) Cost reduction (b) Improving profitability
(c) Reducing working capital (d) Improving operational efficiency.
4. Place utility and Time Utility are
(a) Macro Dimensions (b) Micro Dimensions
(c) Logistics Systems (d) External Drivers
5. For a better co-ordination and quality decision, it should be properly utilized and managed.
(a) Location (b) Transportation
(c) Information (d) Man power
Answers: 1 (c) 2 (b) 3 (d) 4 (a) 5 (c)
Fill in the Blanks
1. A………… is the alignment of firms that bring goods and services to the market.
Answer : Supply Chain
SOURCING STRATEGY
Supply Chain Community
Raw Material Supply -> Manufacturer -> Distributors -> Wholesalers -> Retailers -> End User
Reverse Logistics
Contents
2.1. MANUFACTURING/PRODUCTION MANAGEMENT
2.2. SCOPE OF MANUFACTURING MANAGEMENT
2.3. PRINCIPLES OF MANUFACTURING MANAGEMENT
2.4. MAKE OR BUY - NEXUS
2.5. CAPACITY MANAGEMENT
2.6. MATERIALS MANAGEMENT
2.7. SCOPE OF MATERIALS MANAGEMENT
2.8. CHOICE OF SOURCES
2.9. PROCUREMENT PLANNING
2.1 MANUFACTURING/PRODUCTION MANAGEMENT
Introduction
Production Management can also be termed as Manufacturing Management.
Planning, organizing and controlling manufacture of goods in manufacturing management.
Manufacturing is carried out through processes.
A process is any activity or group of activities that takes one or more inputs, transform them and provides one or more outputs.
The output could be for an external customer for sale or for an internal customer to use for further processing.
Manufacturing processes convert materials into goods that have a physical form.
Meaning of Manufacturing Management
Production/Manufacturing Management is a branch of management that is related to the production of goods.
Production may be referred as the process of converting the inputs (raw materials, machinery, manpower and information) into output (semi-finished or finished goods or services).
In other words, production management is the management by which scientific planning and regulation to make best use of the resources by an enterprise in converting inputs into outputs.
Definition of Manufacturing Management:
"Manufacturing Management is the process of effectively organizing, planning and regulating the operations that are required by an enterprise, which is responsible in transforming the materials into finished goods".
In the words of S.Buffa, the manufacturing management is termed as:
"A decision related to production process, wherein the goods and services are produced as per the amount utilized, schedules demanded and at a minimum cost".
A MANUFACTURING PROCESS SYSTEM
INPUTS: Material, Machinery, Man Power, Location, Information
PROCESS: Transformation
OUTPUT: GOODS, SERVICES
Thus, the manufacturing process system is divided into three parts, as Inputs, Process and Outputs.
The factors of production are transformed by the organization into output viz., Goods or Services.
2.2 SCOPE OF MANUFACTURING MANAGEMENT
The scope of manufacturing management is associated with factory system and the factory management.
Prior to the evolution of factory system, a single person used to carry all the activities.
In the post-factory system, the aspects such as quality control, layout facilities, meeting the schedules and other organizational activities were addressed well.
Various functions that form the part of the scope of manufacturing activities:
Production planning, selection and design.
Facilities required for production
Production system design
Method Study
Layout of factory and materials handling
Capacity planning
Production planning
Production control
Inventory control
Quality control
Maintenance and Repairs
Replacement
Cost reduction and control
2.3 PRINCIPLES OF MANUFACTURING MANAGEMENT
Manufacturing process is existing since, the evolution of mankind.
In the early civilization, human beings used to manufacture goods on their own to fulfil their basic requirements.
With the development of industrialization, the role of manufacturing transformed from manual to mechanization.
The underlying principle of any manufacturing is to convert the raw material into finished goods.
The manufacturing process would include machines, personnel, inventory and warehousing.
Manufacturing management includes management of all the activities of manufacturing process i.e. the conversion of raw materials to finished goods.
A firm involves number of decisions with regard to manufacturing of goods.
One of such decisions is `make or buy' decisions.
Make Vs Buy issue is strategic in nature and involves number of key aspects such as whether the goods are to be produced by the firm? or should they be purchased from outside.
Traditionally, firms will be under an opinion that everything should be done internally, unless there is a compelling need in favour of out sourcing.
The make Vs buy decision evaluates the involvement and contribution of each activity in the organization.
According to value chain model developed by Michael Porter, the supply chain activities are classifies as (i) Primary Activities and (ii) Secondary Activities.
Primary Activities
Inbound logistics operation
Outbound logistics
Marketing and sales
Services
Activities
Technology Development
Procurement
``` - value mgmt
MAKE OR BUY DECISION
Make-or-Buy Decision ['mak' or 'bidi- 'si-zhan]
Choosing between manufacturing a product in-house or purchasing it from an external supplier.
The main focus today's organizations is on outsourcing of non-critical components.
These decisions are taken after considering the factors like, capacity, leverage an organization gets and the quality and confidence in working with the vendor.
Make buy decision is a strategic decision and the area that has to be discussed in the development of the total cost model.
It has been seen that having a supplier that can work in a simultaneous engineering way with the company is the main aspect in order to avoid costs associated with unnecessary design complexity.
This may also mean having a supplier who can provide the same support through IT rather than having an engineer in site, and achieve the same result.
The next consideration is the aspect of labour charges.
The need for simultaneous engineering is required to off-shore the areas such as low labour rates, labour rate inflation and challenges from overseas outsourcing.
Make or Buy - Vital Elements
The following are some of the vital elements that are to be considered for taking decisions w.r.t. make or buy.
1. Identifying the core functions: The focus should be on core activities to match capabilities with the best-in-class performance is not enough.
Firms must strive towards being 'best among the world' in the specified areas. But, identifying the core areas is a crucial task.
The primary step of a company or a firm should be to distinguish between commodity activities and core activities.
Focus on improving core areas have significant impact on the performance of the firm
2. Market Vs Hierarchy: When the question of market versus hierarchy is considered, there comes the key aspect of make or buy.
In a market mechanism to procure necessary inputs, it may be able to take advantage of economies of scale also can choose suppliers and services at lower price.
On the other hand, in hierarchical form, a firm has greater control over co-ordinating with the activities internally, but may not have enough options for internal supplier to work on innovations to reduce cost.
3. Economies of Scale: Always high volume of goods allow a firm to spread its fixed cost over a large volume of operations, thus, a firm with bigger size of operations will have lower cost of operations.
4. Agency Cost: If once, it is decided to manufacture the necessary inputs within the enterprise, the firm has to worry about agency issues.
It is quite common that managers and workers of internal supply units may not act best in the interest of the firms.
Thus, the top management may incur agency costs.
5. Transaction Cost: Some costs are involved in using market mechanisms, which can be avoided, if those activities are managed properly by the firm.
They are the costs involved in locating and evaluating right suppler, bargaining and contracting costs, policing and enforcement costs and the costs that are incurred because of loss of control.
2.4 MAKE OR BUY - NEXUS
There are two extreme positions to discuss. (i) make an input or buy an input using the market and (ii) vertical integration versus market, where the buyer has a long-term relationship with the suppliers.
There are several alternative ways in which the decisions can be taken.
(i) Tapered Integration - is a phenomenon wherein a firm both makes and buys a given output.
Firms like Pizza corner and Madhura Garments fall in this category.
These firms own some retail outlets, depend on franchise or other models for the rest of their sales.
They keep a part of their manufacturing in-house allows the firm to have a better understanding of the industry cost structures and this helps them to negotiate better deals with the external suppliers.
The firm will have a choice to keep pressure on the supplier by demanding to improve, failing which, they will be shifting to in-house manufacture.
Another example, Airtel has decided to shift the bulk of its call centres to external firms, but has retained support centres for strategic customers internally, so that, it need not face communication issues with its important patrons.
(ii) Collaborative Relationship-In a collaborative relationship, the supplier is an extension of the firm.
A firm treats its suppliers as strategic partners and usually a supplier is assured of business in the long run.
The firms do not take the advantage of competitive bidding and does not change its suppliers to get small price reduction offers by a competing supplier.
One of the major concerns in collaborative relationship is ensuring
Dell Computers benchmarks all its partners on cost and technology leadership. Only if the supplier maintains leadership on both these fronts, Dell continue with the same partner.
Another example, Firms like Toyota buy 80% of the required components from the market.
Japanese manufacturers work with a network of suppliers with whom they maintain close relationships.
Japanese companies have subcontractor networks called "keiretsu". This network involves vendors, bankers and distributors. Firms within keiretsu are linked by informal personal relationships.
2.5 CAPACITY MANAGEMENT
"Capacity Management refers to the act of ensuring a business maximize its potential activities. and production output- under all conditions and in all times".
Importance of Capacity Decisions:
Impacts ability to meet future demands
Affects operating costs
Major determinants of initial costs
Involves long-term commitment
Affects competitiveness
Process of Capacity Management
1. Measuring current resources to derive your current capacity
2. Understanding what resources could be procured and how that will affect your current capacity
3. Accounting for current and future demands on your capacity
4. Strategically allocating resources to meet your goals
5. Monitoring final capacity usage, analyzing past projects
6. Recalibrating benchmarks for the next project, using data from the past and a fresh assessment of your current capacity and demands
Production Capacity Management
Capacity management can examine how efficiently your company uses resources to manufacture goods.
These resources include owned or rented space, employees, equipment and machinery, raw materials, product components, packaging supplies and modes of transportation.
2.6 MATERIALS MANAGEMENT
Meaning of Material Management is a function, which aims for an integrated approach towards the management of materials of an industrial unit.
The main objective of materials handling is efficient handling of materials at all stages of production and cost reduction.
Its functions include vital aspects of material such as purchasing, storage, inventory control, material handling and standardization.
2.7 SCOPE OF MATERIALS MANAGEMENT
Materials management is defined as "the function responsible for the coordination of planning, sourcing, purchasing, moving, storing and controlling materials in an optimum manner so as to provide a pre-decided service to the customer at a minimum cost".
From the definition of material management, it is evident that its scope is wider. The functions of material management is illustrated with the following flow chart.
Functions of Material Management:
Materials Planning & Control
Purchasing
Stores Management
Inventory Management
Other related Functions
Standardization
Simplification
Specifications
Value Analysis
Ergonomics
Just-in-Time (JIT)
Details of various functions:
1. Materials Planning & Control:
Materials planning and control is done based on the sales forecast and production.
This includes estimating the requirements of parts, material budget, forecasting inventory levels, scheduling the orders and monitoring the performance in relation to the production and sales.
2. Purchasing:
The terms of purchase, placement of purchase orders, maintenance, follow-up, relationship with suppliers, payments to suppliers, evaluating and rating suppliers based on the feedback, forms part of purchasing.
3. Stores Management:
This function includes physical control of materials, preservation of stores, minimization of obsolescence and damage through timely disposal and efficient handling, maintenance of stores records, proper location and stocking .
A stores is also responsible for the physical verification of stocks and reconciling them with book figures.
4. Inventory Management:
Inventory generally refers to the inventory in stock. The interval between receiving the purchased parts and transforming them into the final product varies from industries to industries depending up on the cycle time of manufacturing.
It is therefore necessary to hold inventories of various kinds to act as a buffer between supply and demand for efficient operation of the system.
5. Other Related Activities:
(a) Standardization: Standardization means producing maximum variety of products from the minimum variety of materials, parts, tools and processes. It is the process of establishing standards or units of measure by which extent, quality, quantity, value, performance etc. may be compared and measured.
(b) Simplification: The concept of simplification is closely related to standardization. Simplification is the process of reducing the variety of products manufactured.
Simplification is concerned with the reduction of product range, assemblies, parts, materials and design.
(c) Specifications: It refers to a precise statement that formulizes the requirements of the customer. It may relate to a product, process or a service.
Example: Specifications of an axle block are Inside Dia.=2pm0.1cm, Outside Dia.=4pm0.2cm and Length=10+0.5cm.
(a) Value Analysis: Value analysis is concerned with the costs added due to inefficient or unnecessary specifications and features. It makes its contribution in the last stage of product cycle, namely, the maturity stage.
At this stage research and development no longer make positive contributions in terms of improving the efficiency of the functions of the product or adding new functions to it.
(b) Ergonomics: Is also termed as "Human Engineering". The human factors or human engineering is concerned with man-machine system.
Ergonomics is "the design of human tasks, man-machine system, and effective accomplishment of the job, including displays for presenting information to human sensors, controls for human operations and complex man-machine systems."
(e) Just-in-Time (JIT):
JIT Manufacturing is a philosophy, rather than a technique.
By eliminating all waste and seeking continuous improvement, it aims at creating manufacturing system that is responding to the market needs.
According to Voss, JIT is defined as, "Production methodology which aims to improve overall productivity through elimination of waste and which leads to improved quality".
Just-in-Time provides an efficient production in an organization and delivery of only the necessary parts in the right quantity, at the right time and in the right place, while using the minimum facilities.
The phase Just-in-Time is used to because this system operates with low WIP (Work-in-Process) inventory and often with very low finished goods inventory.
Products are assembled just before they are sold, subassemblies are made just before they are assembled and components are made and fabricated just before subassemblies are made. This leads to lower WIP and reduced lead times. To achieve this organizations have to be excellent in other areas e.g. quality.
2.8 CHOICE OF SOURCES
Selection of right suppliers is the prime responsibility of the purchase department.
Different strategies can be used for acquiring different types of materials.
The selection of suppler from standardized products differ from non-standardized products.
The following are some of the factors considered for the choice of sources.
1. Sources of Supplier
It is the duty of the purchase department to locate an appropriate sources of supplier of various types