Department of Aerospace Engineering

OPERATIONS MANAGEMENT IN AEROSPACE

Module 2

Supply Chain Management

Dr. Sharatkumar Variyar

Associate Professor, Department of Aerospace Engineering,
Dayananda Sagar University,
Hosur Main Road, Kudlu Gate
Bengaluru- 560 068.

Department of Aerospace Engineering, School of Engineering, Dayananda Sagar University

1
 SECTION ONE
Supply Chain Overview
Supply chains are the flow of materials, information, and
finances as they move in all directions from supplier to
manufacturer to wholesaler to retailer to consumer.

Customer demand
is the key driver of
the supply chain.
Definitions

* Supply Chain Management - the systemic, strategic

coordination of the traditional business functions and the tactics
across these business functions within a particular company and
across businesses within the supply chain for the purposes of
improving the long-term performance of the individual companies
and the supply chain as a whole.

* Logistics - Science of managing (controlling) the movement and

storage of goods (or people) from acquisition to consumption.
Inexpensive Transportation and Inventory

* Inexpensive transportation:
* Allows specialization in space.
* De-couples supply and demand regions.
* Increases availability and competition.

* Inexpensive inventory/warehousing:
* Allows specialization in time.
* De-couples supply and demand in time.
* Increases availability and competition.
Evolution of Supply Chain Management
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+

Demand forecasting

Purchasing

Requirements planning
Purchasing/
Production planning Materials
Management
Manufacturing inventory

Warehousing
Logistics
Material handling

Packaging

Finished goods inventory Supply Chain

Physical Supply Chain
Management
Distribution Management
Distribution planning

Order processing

Transportation

Customer service

Strategic planning

Information services

Marketing/sales

Finance
CR (2004) Prentice Hall, Inc.
Scope of the Supply Chain for Most Firms
Business logistics

Physical supply Physical distribution

(Materials management)

Sources of Plants/
Customers
supply operations
• Transportation • Transportation
• Inventory maintenance • Inventory maintenance
• Order processing • Order processing
• Acquisition • Product scheduling
• Protective packaging • Protective packaging
• Warehousing • Warehousing
• Materials handling • Materials handling
• Information maintenance • Information maintenance

Focus firm’s internal supply chain

CR (2004) Prentice Hall, Inc. 1-14
 Key Activities/Processes
• Primary
- Setting customer service goals
- Transportation
- Inventory management
- Location

• Secondary, or supporting
- Warehousing
- Materials handling
- Acquisition (purchasing)
- Protective packaging
- Product scheduling
- Order processing
CR (2004) Prentice Hall, Inc.
 Decision Areas

Where?, How many?

What size?
Location
Allocation?

Inventory Transportation
Strategy/Control system? Which mode?
How much? Which carrier?
Where? Which route?
Shipment size and frequency?
 Customer Service
in Planning Triangle

Inventory Strategy
• Forecasting Transport Strategy
• Inventory decisions • Transport fundamentals
• Purchasing and supply • Transport decisions
scheduling decisions Customer

ORGANIZING

CONTROLLING
• Storage fundamentals service goals

PLANNING
• Storage decisions • The product
Logistics service
• Logistics service
• Ord . proc. & info. sys.

Location Strategy
• Location decisions
• The network planning process

1-10
CR (2004) Prentice Hall, Inc.
 Cost Conflicts
Revenue

Total costs Total costs

Revenue
Cost
Cost

Transportation,
order processing,
and inventory Inventory
costs costs
Lost sales cost Transportation costs
0 0 0
0 Improved customer service 100% Increasing number of stocking points

(a) Setting the customer service level (b) Determining the number of warehouses in a logistics
system

Total costs Total costs

Cost

Cost
Inventory Inventory
carrying carryng cost
costs
Lost sales cost Production costs
0 0
0 Average inventory level Product run length and product sequencing
altenatives

(c) Setting safety stock levels (d) Setting the sequence of production runs for
multiple products
CR (2004) Prentice Hall, Inc.
Bullwhip Effect
§ Bullwhip Effect: inaccurate forecasts create disruption
and expense within the organization and has a ripple
effect of customers and supplier
§ Ultimately it reduces profit and inflates the end cost for
customers
§ Variations of demand are amplified at each of the
following:
* Inaccurate forecasting and planning
* Lack of communication
* Lack of visibility
* Excess lead time
* Late deliveries
The “Bullwhip Effect” in Supply
Chains
Supplier

Manufacturer

Wholesaler
Retailer
Customer

Customer Order Cycle Replenishment Cycle Manufacturing Cycle Procurement Cycle

Order 10 units Order 12 units Order 15 units Order 20 units
 The Supply Chain and its Cycles

Supply Chain
Customer Retailer Distributor Manufacturer Supplier

Information Flow
Customer Order Cycle Replenishment Cycle Manufacturing Cycle Procurement Cycle
Inventory

Time
9/22/23

Most Important Customer

Service Elements

•On-time delivery
•Order fill rate
•Product condition
•Accurate documentation

1-15
CR (2004) Prentice Hall, Inc.
9/22/23
Components of a Customer Order Cycle

WAREHOUSE
Order processing
Customer and assembly
order
transmittal Transmittal of
backorder items
CUSTOMER
Retail outlet Order
delivery

FACTORY
Express Order processing,
order assembly from stock, or
delivery production if no stock

CR (2004) Prentice Hall, Inc. 1-16 4-10

Communications

* EDI - Electronic Data Interchange.

* Intercompany computer-to-computer data exchange.
* Internet.
* XML, World Wide Web, Wireless.
* Radio Frequency (RF) exchange.
* Real-time two-way communication in facilities.
* RFID communicates contents of container, pallet, etc.
* Bar coding & scanning.
* Satellite communications.
* For transportation carriers & retailers.
Software “Solutions”

* Demand Planning & Forecasting.

* To forecast demand, plan replenishment and manage
inventory.
* Link to Production, Warehousing, Inventory,
Transportation, etc.
* Major effects on inventory costs and fill rate.

* Supply Chain Planning.

* To design network, locate facilities, allocate products
to facilities, determine transportation links, etc.
* Long-range strategic planning.
* Major effects on transportation and inventory (and
production).
Software “Solutions”

* Transportation Management.
* For load planning, routing and scheduling, dispatching,
driver management, international freight, etc.
* Major effect is to reduce transportation costs.

* Warehouse Management.
* To control movement and storage of materials in a
warehouse.
* Includes inbound shipments, outbound shipments,
storage, yard management, etc.
* Major effects on inventory costs, fill rate.
Demand Planning

Supply chain management is about

balancing supply with demand.
Balancing Supply & Demand
§ Balancing supply and demand is a constant process
§ Too much demand and low supply = business loss that
may not be recaptured (stockouts)
§ Low demand and high supply = money tied up in
inventory and storage facilities, risk that product become
obsolete
Demand Shaping

§ Internal Method: being able to fluctuate how much is

produced and how much inventory is stored
* Equipment may allow companies to change what they are
producing
§ External Method: adapts price and lead time which
shapes the demand – influencing demand to match
supply
* Making 17" monitors the same price as 15" monitors to sell
more 17" monitors
Demand Plans
§ Demand planning is a comprehensive, collaborative
process that requires consensus
§ Companies need a common demand plan
§ Collaborative Planning, Forecasting, and
Replenishing (CPFR) is the process used to achieve
an agreed-upon plan
§ Key Terms:
* Materials Required Plan
* Master Production Schedule
* Enterprise Resource Planning
Procurement
§ Procurement: the key function in the supply chain that is
responsible for buying, or procuring, good and services

§ Purchasing is the act of buying

§ Procurement process involves planning, negotiation, and

administration associated with the eventual placement of
purchase orders with suppliers

§ The right materials need to be purchased - based upon

definition of requirements and formal specifications
Relationship Management & Strategic Sourcing

§ Relationships with suppliers are more important

§ Relationship Management: the focus on building,
maintaining, and developing relationships for the future
of both organizations
§ Buying no longer focuses only of the lowest price, but
takes in to account a variety of factors
§ Strategic sourcing describes the concept of a win-win
relationship