Production Planning and Control           Lecture Notes              26th July 2002

Notes By: Gautam Tambay

 

Importance of Supply Chain management: An Illustrative Example

 

An excellent example to highlight the importance of supply chain management would be the case of two of the biggest retail chains in the world, Walmart and K-mart.

In 1987, K-mart’s turnover stood at $25b, while Walmart had a relatively smaller chunk of the market at $15b. Over the next 7 years, while the former did not bring about major changes in its operations, Walmart invested heavily in supply chain and operations management techniques. The results speak for themselves. While K-mart’s turnover increased marginally to $27b, Walmart’s had reached a whopping $80b.

 

 

BUSINESS PROCESS RE-ENGINEERING (BPR)

 

“BPR is the process of rethinking of how and why things are done in a certain way.”

 

The idea of reengineering is elucidated by the following study of the IBM Credit approval process:

 

There was a time when a request for financing from IBM would be processed through the following steps:

 

1. The request would be logged on to a piece of paper by a salesperson.
2. This piece of paper would then be carried to the Credit Department at IBM.
3. Someone would then enter this data onto a computer system, check the credit                                   worthiness of the customer and report the results to the Business Practices Department (BPD).
4. On a different computer system, a person in the BPD would modify the standard loan document in response to the customer request.
5. Both the documents (from 4. and 5.) would go to the pricer, who would then use spreadsheets  to determine the prices that should be offered to the customer.
6. Finally the clerical staff would turn this into a quote letter and FedEx it.

 

Obviously the process involved too many steps. Thus, a process that required about 90 minutes of actual working time, would typically take anything between 6 days and 2 weeks.

 

IBM decided to cut down on the number of steps, i.e. combine some steps and eliminate some people in the chain, so that the whole process took an average of 4 hrs.

 

The idea was, that about 95% of the cases, could be classified as ‘regular’ cases and could be handled easily using a fixed algorithm which skipped unnecessary details. These cases could easily be processed in a small period of time. The remaining 5% of the cases, which one may call aberrant cases would take longer, as these would need specialized knowledge and often more detailed analysis. These cases would take longer. However, since an average customer’s demand would be processes much faster than before, the overall productivity of the process increased tremendously.

 

General Principles of BPR:

1. Several jobs are combined into one (moving away from Adam Smith’s principle of Division of Labour)
2. Workers make the decisions
3. Steps are performed in a natural order, not in a rigid linear sequence. For instance, if time is a constraint, it is wiser to do things in parallel than in series.
4. The process should have multiple versions, i.e. separate versions for routine and exceptional cases, as discussed in the IBM example.
5. Work is done when it makes more sense.

 

Some resources on BPR on the internet:

http://www.eil.utoronto.ca/tool/BPR.html

http://www.brint.com/BPR.htm

FORECASTING: Introduction

 

Typical scenarios where estimation may be done by using forecasting techniques:

• Number of cars entering IIT premises on a given day
• Consumption of milk in a hostel in a given week

 

Forecasting is often very difficult and the costs involved may be prohibitive.

Thus, commonsensical solutions or models may often as good as sophisticated ones. The aim is to choose a model which minimizes the chances of error.