Supply Chain Management: Key Concepts and Case Studies
Supply Chain Management Fundamentals
Little’s Law and Process Capacity
Little’s Law states that the average inventory in a system is equal to the product of the average flow rate and the average flow time:
Average Inventory = Average Flow Rate * Average Flow Time
The capacity of a single resource is calculated as the reciprocal of its activity time:
Capacity of a single resource = 1 / activity time
For resources in parallel, the capacity is the sum of individual capacities:
Capacity of resources in parallel = (# of resources in parallel) / activity time
Process capacity refers to the capacity of the bottleneck, which is the slowest step in the process.
Flow Rate and Flow Time
Flow rate is the rate at which a process delivers output, measured in flow units per unit of time. It is determined by the minimum of demand and process capacity:
- Demand < Process Capacity: Demand-constrained process
- Demand > Process Capacity: Supply-constrained process
- Demand = Process Capacity: Demand and supply-constrained process
Flow time is the time it takes for a flow unit to complete the process, including waiting time in buffers.
Rush order flow time is the time it takes for a rush order to go through the process with expedited handling.
Cycle Time and Utilization
Cycle time is the average time between the production of two consecutive flow units:
Cycle Time = 1 / Flow Rate
Utilization measures the percentage of time a resource is actively producing flow units.
Process utilization is calculated as:
Process utilization = Flow Rate / Process Capacity
Utilization of a set of resources is calculated as:
Utilization of (set of) resource(s) = Flow rate / capacity of (set of) resources
Labor utilization is calculated as:
Labor utilization = Labor Content / (Cycle Time * Number of employees)
Labor content is the sum of labor time per activity multiplied by the number of activities.
Batching
Batching involves processing items in groups. The total time required for a batch process includes a fixed time per batch (F) and a variable time per unit (v):
Total time = F + vQ, where Q is the batch size
Capacity in batches per unit time is calculated as:
Capacity = Q / (F + vQ)
Time between batches is calculated as:
Time between batches = Q * Flow Rate
Average batch inventory is calculated as:
Average Batch Inventory = [Q * Activity Time + (Q/2 * Activity Time * Q)] / (Q * Flow Rate)
Average buffer inventory is calculated as:
Average Buffer Inventory = Q / 2
Average inventory is the sum of average batch and buffer inventory.
Percentage of idle time is calculated as:
% Idle Time = (Time between batches – (F + vQ)) / Time between batches
Breakeven Analysis and Profit
Breakeven volume is the point where revenue equals total costs:
Breakeven volume = Fixed Cost / (Price – Variable Cost per unit)
Profit is calculated as:
Profit = (Revenue per unit * Number of units) – (Fixed Cost + Variable Cost per unit * Number of units)
Percentage change in profit is calculated as:
% Change in Profit = (Increase or Decrease in Profit) / Old Profit
Supply Chain Resiliency Strategies
Strategies to enhance supply chain resilience include:
- Transparency
- Strategic stockpiles
- Multi-regionalization
- Multiple suppliers
- Insourcing
- New product design
Case Studies
Toyota and the 2011 Fukushima Earthquake
The 2011 Fukushima earthquake exposed vulnerabilities in Toyota’s supply chain, highlighting the lack of transparency beyond tier 1 suppliers. Toyota responded by increasing inventory levels and diversifying its supplier base.
Breakfast at the Paramount: Implementing a Carry-Out Option
Breakfast at the Paramount faces high demand and long wait times. The case study explores the feasibility of implementing a carry-out option with DoorDash to improve customer service and efficiency.
Benihana: High-Volume, High-Productivity Restaurant
Benihana’s business model focuses on high volume and productivity, with fixed costs offset by efficient operations and a focus on customer experience.
Variability in the Supply Chain
Variability is detrimental to supply chain efficiency. Strategies to mitigate variability include diversifying suppliers, maintaining strategic stockpiles, and implementing flexible production processes.
Additional Concepts
The document also touches on concepts such as rush order flow time in simultaneous resource environments and the SCOR model for supply chain management.