INTEGRAL LOGISTICS MANAGEMENT

(1)

(2)

INTEGRAL

LOGISTICS

MANAGEMENT

(3)

Integral Logistics Management: Operations and Supply Chain Management in Comprehensive Value-Added Networks, Third Edition by Paul Schönsleben

ISBN: 1-4200-5194-6

Supply Chain Cost Control Using Activity- Based Management

Sameer Kumar and Matthew Zander ISBN: 0-8493-8215-7

Financial Models and Tools for Managing Lean Manufacturing

Sameer Kumar and David Meade ISBN: 0-8493-9185-7

RFID in the Supply Chain Judith M. Myerson ISBN: 0-8493-3018-1

Handbook of Supply Chain Management, Second Edition

by James B. Ayers ISBN: 0-8493-3160-9

The Portal to Lean Production: Principles

& Practices for Doing More With Less by John Nicholas and Avi Soni ISBN: 0-8493-5031-X

Supply Market Intelligence: A Managerial Handbook for Building Sourcing Strategies by Robert Handfield

ISBN: 0-8493-2789-X

The Small Manufacturer’s Toolkit: A Guide to Selecting the Techniques and Systems to Help You Win

by Steve Novak ISBN: 0-8493-2883-7

Velocity Management in Logistics and Distribution: Lessons from the Military to Secure the Speed of Business

by Joseph L. Walden ISBN: 0-8493-2859-4

Supply Chain for Liquids: Out of the Box Approaches to Liquid Logistics

by Wally Klatch ISBN: 0-8493-2853-5

Supply Chain Architecture: A Blueprint for Networking the Flow of Material, Information, and Cash

by William T. Walker ISBN: 1-57444-357-7

ERP: Tools, Techniques, and Applications for Integrating the Supply Chain by Carol A. Ptak with Eli Schragenheim ISBN: 1-57444-358-5

Introduction to e-Supply Chain Management:

Engaging Technology to Build

Market-Winning Business Partnerships by David C. Ross

ISBN: 1-57444-324-0 Supply Chain Networks and Business Process Orientation by Kevin P. McCormack and

William C. Johnson with William T. Walker ISBN: 1-57444-327-5

Collaborative Manufacturing: Using Real-Time Information to Support the Supply Chain

by Michael McClellan ISBN: 1-57444-341-0

The Supply Chain Manager’s Problem-Solver:

Maximizing the Value of Collaboration and Technology

by Charles C. Poirier ISBN: 1-57444-335-6

Lean Performance ERP Project Management:

Implementing the Virtual Supply Chain by Brian J. Carroll

ISBN: 1-57444-309-7

Integrated Learning for ERP Success:

A Learning Requirements Planning Approach by Karl M. Kapp, with William F. Latham and Hester N. Ford-Latham

ISBN: 1-57444-296-1

Basics of Supply Chain Management by Lawrence D. Fredendall and Ed Hill ISBN: 1-57444-120-5

Lean Manufacturing: Tools, Techniques, and How to Use Them

by William M. Feld ISBN: 1-57444-297-X Back to Basics: Your Guide to Manufacturing Excellence by Steven A. Melnyk and R.T. Chris Christensen ISBN: 1-57444-279-1

Enterprise Resource Planning and Beyond:

Integrating Your Entire Organization by Gary A. Langenwalter

ISBN: 1-57444-260-0

Inventory Classification Innovation:

Paving the Way for Electronic Commerce and Vendor Managed Inventory

by Russell G. Broeckelmann ISBN: 1-57444-237-6

(4)

Boca Raton New York Auerbach Publications is an imprint of the Taylor & Francis Group, an informa business

Operations and Supply Chain Management in Comprehensive

Value-Added Networks

T H I R D E D I T I O N

P A U L S C H Ö N S L E B E N

INTEGRAL

LOGISTICS

MANAGEMENT

(5)

6000 Broken Sound Parkway NW, Suite 300 Boca Raton, FL 33487‑2742

Auerbach is an imprint of Taylor & Francis Group, an Informa business No claim to original U.S. Government works

Printed in the United States of America on acid‑free paper 10 9 8 7 6 5 4 3 2 1

International Standard Book Number‑10: 1‑4200‑5194‑6 (Hardcover) International Standard Book Number‑13: 978‑1‑4200‑5194‑0 (Hardcover)

This book contains information obtained from authentic and highly regarded sources. Reprinted material is quoted with permission, and sources are indicated. A wide variety of references are listed. Reasonable efforts have been made to publish reliable data and information, but the author and the publisher cannot assume responsibility for the validity of all materials or for the conse‑

quences of their use.

No part of this book may be reprinted, reproduced, transmitted, or utilized in any form by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying, microfilming, and recording, or in any information storage or retrieval system, without written permission from the publishers.

For permission to photocopy or use material electronically from this work, please access www.

copyright.com (http://www.copyright.com/) or contact the Copyright Clearance Center, Inc. (CCC) 222 Rosewood Drive, Danvers, MA 01923, 978‑750‑8400. CCC is a not‑for‑profit organization that provides licenses and registration for a variety of users. For organizations that have been granted a photocopy license by the CCC, a separate system of payment has been arranged.

Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe.

Visit the Taylor & Francis Web site at http://www.taylorandfrancis.com and the Auerbach Web site at

http://www.auerbach‑publications.com

(6)

It is a great pleasure to release this third edition of Integral Logistics Management — Operations and Supply Chain Management in Comprehensive Value-added Networks. This is a dynamic field, in both theory and practice. As the revised subheading to the title of the book shows, issues in strategy have gained increasing importance. For this reason, the new edition contains:

• a section on facility location planning, for both production networks and distribution and service networks

• a section on strategic procurement

• a chapter with an overview of TQM and Six Sigma

• a chapter with an overview of system and project management

• new key figures for classification of planning methods in materials management

Also, additional interactive Macromedia Flash elements have been developed that are available for download from the companion Web site to this book at http://intlogman.ethz.ch/. The Web site is frequently updated with further learning materials that the reader may like to use.

Readers are invited to send suggestions and comments to me at Paul.Schoensleben@ethz.ch. The comprehensive index of the book has been expanded in this edition. The material now covers almost all of the key terms in the five CPIM modules contained in the APICS CPIM Exam Content Manual.

In parallel to this third English edition of the book, Springer is publishing the fifth edition in German, Integrales Logistikmanagement – Operations- und Supply Chain Management in umfassenden Wertschöpfungs- netzwerken (ISBN 9783-540-68178-6). Readers of German may like to know Springer-Verlag has also published a treatment of a subject that complements this book (that is, integral information management) under the title Integrales Informationsmanagement: Informationssysteme für Geschäftsprozesse — Management, Modellierung, Lebenszyklus und Technologie (ISBN 3-540-41712-5).

Zurich, January 2007 Prof. Dr. Paul Schönsleben www.lim.ethz.ch/schoensleben/index_EN

(7)

Foreword to the First Edition

Changes in the world outside the company alter the way that we look at problems and priorities in the company itself. This presents new challenges to company logistics and to planning & control of corresponding business processes.

While logistics was once understood as storing and transport, today — in the course of the reorganization of business processes — an integral perspective on company logistics is making headway. Naturally, products must still be stored and transported. But now these processes are seen as disturbing factors that should be reduced as greatly as possible. The current focus lies on that part of the logistics chain that adds value. This chain, from sales logistics to research and design logistics, production and procurement logistics, distribution logistics, service and maintenance logistics, and — a recent development — disposal logistics, now stands as a whole as the subject for discussion. We seek improvements at the level of the comprehensive, coordinated business process. Moreover, more and more networks of companies arise that develop and manufacture products in cooperation. The logistics of these coupled companies must work together closely and rapidly. This also demands integral management of logistics.

These recent tendencies do not only affect the logistics of the flow of goods itself, but rather also its planning & control, or, in other words, administrative and planning logistics. The term PPC (for production planning & control) has in reality long since been expanded to become planning & control of the entire logistics network.

Changing requirements in the world of practice often call for new theories and methods, particularly if earlier theories seem to have lost their connection to that world. This impression indeed often arises when we look at what is happening in company logistics. Close examination reveals that behind the methods and techniques that are sold on today’s market with new and rousing catchwords there is seldom anything that is really new. It seems reasonable to assume that the attempt to match existing knowledge against the rapidly changing reality and — in the sense of continuous improvement — to expand and adapt it has met with failure.

Here lies the crux of the challenge to company logistics today.

The methods and techniques implemented in planning & control are, interestingly enough, not dependent upon classification of the tasks and

(8)

competencies in the organization of the company. For example, techniques of capacity planning do not change according to whether control tasks are executed by central operations planning and scheduling or, in decentralized fashion, by the job shops. The algorithms also remain in principle the same despite being either realized manually or with the aid of software. The algorithms in a comprehensive software package are also the same as those of a locally implemented planning board. In contrast, methods and techniques do indeed change in dependency upon the entrepreneurial objectives, which the choice of logistics should support.

These objectives relate to key areas such as quality, costs, delivery, or various aspects of flexibility.

The present volume aims to present the differing characteristics, tasks, methods, and techniques of planning & control in company logistics as comprehensively as possible. Development and change in operational management for company performance should become transparent.

However, we will not be content with a wide-ranging, general treatment of the subject at the cost of depth and scientific elucidation of the matter at hand. Due to the very fact that logistics and planning & control take place at the operational level of a company, competency in the details is absolutely necessary. Effective plans at the strategic level should not lead to contradictions and inconsistency at the operational level.

Consultants and the software industry, as well as widespread circles in educational institutions, produce constant pressure for novelty — which should not be confused with innovation. There is no need to allow ourselves to be irritated by such influences, which are often just short-lived trends. As always, after all, broad, detailed, methodological, and operational knowledge continues to lead to competency. It is this competency that makes it possible to classify and relate the various business processes and the tasks people in companies carry out and to continuously adapt this system of relations and categorizations to changing entrepreneurial objectives, market situations, product ranges, and employee qualifications.

Today, computer-aided planning & control enjoys a very high status in small- to medium-sized companies. And this is usually rightly so, for the large amounts of data can often not be handled quickly enough by another means. For this reason, presentation of the methods of planning & control in detail will include references to possible IT support.

The present volume is a textbook for industrial engineers, business managers, engineers and practitioners, and computer scientists as part of

(9)

their studies. It also aims to serve the further education of professionals in business practice in industry and the service industries.

The book is a translation of my book Integrales Logistikmanagement — Planung & Steuerung umfassender Geschäftsprozesse, published in 1998 by Springer. The first edition has sold out. The second edition will appear simultaneously and with the same content as the English version.

You will find a part of the bibliography referring to German books or papers. This means that I am still looking for English literature on the specific topic. I would be grateful for any indication of additional English sources of such a specific topic.

In parts, the book reflects the work of my esteemed colleague Prof. Dr.

Alfred Büchel, to whom I am greatly obliged. This is the case particularly with regard to the area of his great interest, statistical methods in planning

& control. These are treated mainly in Chapter 9 and Sections 10.3, 10.4, and 12.2.

Zurich, January 2000 Prof. Dr. Paul Schönsleben

Acknowledgments (Third Edition)

My thanks go first of all to you, my readers, for your numerous suggestions. And then to my colleagues and fellow members of the APICS Curricula and Certification Council: you have enriched my work through your many ideas. Here, special thanks go to Merle Thomas and Roly White. I am grateful to Dr. Robert Alard, Dr. Matthias Schnetzler, Dr.

Alexander Verbeck, Sören Günther, and Nikolai Iliev, members of my staff at the Center for Enterprise Sciences (BWI) at the Swiss Federal Institute of Technology Zurich (ETH), for their valuable input to the new sections and chapters. And I would like to thank my colleagues Hugo Tschirky, Hans-Peter Wiendahl and Markus Bärtschi for their continuing support of my work.

The work of translating and proofreading was again done by Ellen Russon, East Sandwich, MA (ellenrusson@ellenrusson.com), to whom I extend many thanks. Roger Cruz, Dipl. Ing., and his team again took on ready-to- print production of this edition. To them also I express my thanks.

Zurich, January 2007 Prof. Dr. Paul Schönsleben

(10)

Acknowledgments (First and Second Edition)

For the first and second edition, I wish to thank numerous scientific colleagues here and abroad, for valuable discussions and suggestions.

Special thanks are due to many of the active and engaged experts in the APICS community.

In particular, I would like to thank:

• Barry Firth, CPIM, Melbourne, for his invaluable help in updating the classification of fundamental concepts in logistics management (branches in dependency on characteristic features, production types, and concepts for planning & control within the enterprise), as well as for many other contributions.

• Prof. Merle Thomas, CFPIM, Vermont State College, WV, for his ongoing support of my work.

• Prof. Dr. Alfred Büchel and Prof. Markus Bärtschi, my colleagues at the chair of Logistics and Information Mangement at ETH

• Paul Bernard, Rapistan Systems, Grand Rapids, MI

• Prof. Dr. Hans-Peter Wiendahl, University of Hannover, Germany

• Prof. Dr. Thomas M. Liebling, ETH Lausanne, Switzerland

For help with the manuscript, particularly for their critical questions, I wish to thank all previous and current scientific associates and post graduate students of the chair of Logistics and Information Management of the Department of Manufacturing, Industrial Engineering and Management at the Swiss Federal Institute of Technology ETH in Zurich. They make up far too great a number to list individually here. Instead, I am pleased to refer to many of their doctoral theses and further scientific works in the text and bibliography of this book.

And for their untiring help in creating, translating, and correcting the manuscript, I give hearty thanks to Dipl.Ing. Roger Cruz and all the many professionals and assistants that participated in this undertaking.

Zurich, April 2003 and January 2000 Prof. Dr. Paul Schönsleben

(11)

Overview of Contents

Part A. Concepts, and Fundamentals of Design of Integral

Logistics Management ...1

1 Logistics and Operations Management and Enterprise Performance ...3

2 Strategic Decisions and Business Relationships in a Supply Chain...69

3 Business Process Analysis and Fundamental Logistics Concepts...151

4 The MRP II / ERP Concept: Business Processes and Methods ...223

5 The Lean / Just-in-Time Concept and Repetitive Manufacturing....309

6 Concepts for Product Families and One-of-a-Kind Production...365

7 Concepts for the Process Industry...401

8 Logistics Software ...437

Part B. Methods of Planning & Control in Complex Logistics Systems...475

9 Demand and Demand Forecast ...479

10 Inventory Management and Stochastic Materials Management ...529

11 Deterministic Materials Management...585

12 Time Management and Scheduling...627

13 Capacity Management ...683

14 Order Release and Control...737

15 Cost Estimating, Job-Order Costing, and Activity-Based Costing ...799

16 Representation and System Management of Logistic Objects...839

Part C. Overview of Further Management Systems in the Enterprise ...897

17 Quality Management – TQM and Six Sigma...901

18 Systems Engineering and Project Management...939

References...969

Index ...991

Author’s Note...1034

(12)

Detailed Table of Contents

At a first reading of the book, some sections are optional in the sense that they are not necessary in order to understand the material that follows. An asterisk (*) indicates these sections.

1 Logistics and Operations Management and Enterprise Performance ...3

1.1 Basic Definitions ...4

1.1.1 Goods, Products, and the Product Life Cycle ... 4

1.1.2 Basic Definitions in Logistics and Operations Management ... 7

1.1.3 The Supply Chain — A Value-Added Network ... 12

1.2 Business Objects in Logistics and Operations Management...15

1.2.1 Business Partner, Date, Time Period, and Order... 16

1.2.2 Item, Item Family, Product Structure, and Product Family ... 20

1.2.3 Operation, Routing Sheet, Production Structure, and the Process Plan ... 23

1.2.4 Employees, Production Infrastructure, Work Center, Capacity, and Utilization ... 27

1.2.5 Rough-Cut Business Objects ... 31

1.3 Logistics and Operations Management in the Entrepreneurial Context ...35

1.3.1 The Contribution of Logistics and Operations Management to Resolving the Problem of Conflicting Company Objectives ... 35

1.3.2 The Target Area Flexibility – Agile Companies... 42

1.3.3 Logistics and Planning & Control within the Company ... 45

1.3.4 The Objectives of Transcorporate Logistics and Operations Management ... 48

1.4 Performance Measurement in Logistics and Operations Management ...51

1.4.1 The Basics of the Measurement, Meaning, and Practical Applicability of Logistics Performance Indicators ... 53

1.4.2 Performance Indicators in the Target Area of Quality ... 54

1.4.3 Performance Indicators in the Target Area of Costs ... 55

1.4.4 Performance Indicators in the Target Area of Delivery ... 57

1.4.5 Performance Indicators in the Target Area of Flexibility ... 60

1.4.6 Transcorporate Supply Chain Performance Indicators ... 61

1.5 Summary ...63

1.6 Keywords ...64

(19)

1.7.1 Improvements in Meeting Company Objectives ...65

1.7.2 Company Performance and the ROI ...66

1.7.3 Rough-Cut Business Objects ...67

2 Strategic Decisions and Business Relationships in a Supply Chain ...69

2.1 Make or Buy – The Strategic Process of Designing the Supply Chain...69

2.1.1 Transaction Costs as the Basis of Forming Companies ...70

2.1.2 Make Strategies: Profit Center, Cost Center, and Semi- autonomous Organizational Units ...74

2.1.3 Buy-Strategies: Overview on Strategic Procurement ...77

2.2 Strategic Procurement ...80

2.2.1 Strategic Procurement Portfolios ...81

2.2.2 The Traditional Market-Oriented Relationship...84

2.2.3 Supply Management – Supplier Relationship Management ...86

2.2.4 Strategic Selection of Suppliers...88

2.2.5 Basics of E-Procurement Solutions ...92

2.3 Strategic Procurement via a Partnership Relationship ...95

2.3.1 Supply Chain Management...95

2.3.2 The Advanced Logistics Partnership (ALP) Model, a Frame- work for Implementation of Supply Chain Management...98

2.3.3 Top Management Level: Building Trust and Establishing Principal Relationships ...100

2.3.4 Middle Management Level: Working Out Collaborative Processes on the Supply Chain ...102

2.3.5 Operational Management Level: Collaborative Order Processing – Avoiding the Bullwhip Effect...105

2.3.6 An Example of Practical Application ...108

2.3.7 The Virtual Enterprise and Other Forms of Coordination Among Companies ...111

2.4 Facility Location Planning in Production, Distribution, and Service Networks ...115

2.4.1 Design Options for Production, Distribution, and Service Networks ...117

2.4.2 Location Selection for Production Networks: Possible Location Factors and Procedure ...121

2.4.3 Location Selection for Production Networks: Criteria and Cost- Benefit Analysis ...124

2.4.4 Location Selection for Distribution and Service Networks ...130

2.4.5 Location Configuration with Linear Programming...136

2.5 Summary ...137

2.6 Keywords ...139

2.7.1 Supply Management — Supply Chain Management — Advanced Logistics Partnership (ALP) ...139

(20)

2.7.2 Evaluate Company Relationships ... 140

2.7.3 The Bullwhip Effect... 144

2.7.4 Location Configuration with Linear Programming... 145

3 Business Process Analysis and Fundamental Logistics Concepts...151

3.1 Elements of Business Process Management ...153

3.1.1 Basic Definitions of Work, Task, Function, and Process... 153

3.1.2 Terms in Business Process Engineering ... 155

3.1.3 Order Management and Graphical Representation of Logistics Processes... 157

3.2 Push and Pull in the Design of Business Processes...162

3.2.1 Pull Logistics ... 162

3.2.2 Push Logistics... 164

3.2.3 Synchronization between Use and Manufacturing with Inventory Control Processes ... 167

3.3 Important Techniques of Analysis in Business Process Engineering ...168

3.3.1 Organization-Oriented Process Chart ... 169

3.3.2 Manufacturing and Service Processes in the Company-Internal and Transcorporate Layout ... 171

3.3.3 Detailed Analysis and Time Study of Processes... 174

3.4 Characteristic Features in Logistics and Operations Management ...176

3.4.1 Principle and Validity of Characteristics in Planning & Control . 176 3.4.2 Six Features in Reference to Customer, and Item or Product or Product Family ... 178

3.4.3 Five Features in Reference to Logistics and Production Resources... 184

3.4.4 Seven Features in Reference to the Production or Procurement Order... 192

3.4.5 Important Relationships between Characteristic Features ... 197

3.4.6 Features of Transcorporate Logistics in Supply Chains... 201

3.5 Fundamental Concepts in Logistics and Operations Management ...205

3.5.1 Branches of Industry in Dependency Upon Characteristic Features... 205

3.5.2 Production Types ... 207

3.5.3 Concepts for Planning & Control within the Company ... 210

3.5.4 Selecting an Appropriate Branch Model, Production Type, and Concept for Planning & Control ... 213

3.5.5 Concepts of Transcorporate Planning & Control of the Supply Chain... 215

3.6 Summary ...218

3.7 Keywords ...219

(21)

3.8.1 Concepts for Planning & Control within the Company ...220

3.8.2 Synchronization between Use and Manufacturing with Inventory Control Processes ...220

3.8.3 Basic Process Analysis and Manufacturing Processes in the Company-Internal Layout...221

4 The MRP II / ERP Concept: Business Processes and Methods...223

4.1 Business Processes and Tasks in Planning & Control...224

4.1.1 The MRP II Concept and Its Planning Hierarchy ...224

4.1.2 Part Processes and Tasks in Long-Term and Medium-Term Planning...227

4.1.3 Part Processes and Tasks in Short-Term Planning & Control ...231

4.1.4 Reference Model of Processes and Tasks in Planning & Control.234 4.1.5 Beyond MRP II: DRP II, Integrated Resource Management, and the “Theory of Constraints” ...238

4.2 Master Planning — Long-Term Planning ...243

4.2.1 Demand Management: Bid and Customer Blanket Order Processing and Demand Forecasting ...243

4.2.2 Sales and Operations Planning and Resource Requirements Planning...246

4.2.3 Master Scheduling and Rough-Cut Capacity Planning...252

4.2.4 Verifying the Feasibility of a Master Production Schedule: Available-to-Promise and Order Promising...258

4.2.5 Supplier Scheduling: Blanket Order Processing, Release, and Coordination ...260

4.3 Introduction to Detailed Planning and Execution ...263

4.3.1 Basic Principles of Materials Management Concepts...263

4.3.2 Overview of Materials Management Techniques ...266

4.3.3 Basic Principles of Scheduling and Capacity Management Concepts ...271

4.3.4 Overview of Scheduling and Capacity Management Techniques.275 4.4 Logistics Business Methods in Research and Development (*)...280

4.4.1 Integrated Order Processing and Simultaneous Engineering...280

4.4.2 Release Control and Engineering Change Control ...284

4.4.3 Different Views of the Business Object According to Task ...286

4.4.4 The Concept of Computer-Integrated Manufacturing...289

4.5 Current State of Knowledge of Logistics Management (*)...291

4.5.1 Historical Overview...291

4.5.2 The Problem of Knowledge Continuity and the Role of APICS ..293

4.5.3 New Trends and Challenges ...295

4.6 Summary ...298

4.7 Keywords ...299

(22)

4.8 Scenarios and Exercises ...300 4.8.1 Master Scheduling and Product Variants... 300 4.8.2 Available-to-Promise (ATP)... 301 4.8.3 Theory of Constraints ... 302 4.8.4 Master Planning Case ... 303 5 The Lean / Just-in-Time Concept and Repetitive

Manufacturing...309 5.1 Characterizing Lean / Just-in-Time and Repetitive

Manufacturing ...311 5.1.1 Just-in-Time and Jidoka – Increasing Productivity Through

Eliminating Waste... 311 5.1.2 Characteristic Features for Simple and Effective Planning &

Control Techniques of Repetitive Manufacturing... 313 5.2 The Lean / Just-in-Time Concept...316

5.2.1 Lead Time Reduction through Setup Time Reduction and

Batch Size Reduction... 316 5.2.2 Further Concepts of Lead Time Reduction ... 320 5.2.3 Line Balancing — Harmonizing the Content of Work ... 326 5.2.4 Just-in-Time Logistics ... 330 5.2.5 Generally Valid Advantages of the Lean / Just-in-Time

Concept for Materials Management... 332 5.2.6 Generally Valid Advantages of the Lean / Just-in-Time

Concept for Capacity Management... 334 5.3 The Kanban Technique ...335 5.3.1 Kanban: A Technique of Execution and Control of Operations .. 335 5.3.2 Kanban: A Technique of Materials Management ... 339 5.3.3 Kanban: Long- and Medium-Term Planning ... 342 5.4 The Cumulative Production Figures Principle ...343 5.5 Comparison of Techniques of Materials Management ...346 5.5.1 Comparison of Control Principles behind the Techniques... 347 5.5.2 Strategy in Choosing Techniques and Implementing Procedures 350 5.5.3 Comparison of Techniques: Kanban versus Order Point

Technique (*)... 352 5.6 Summary ...356 5.7 Keywords ...357 5.8 Scenarios and Exercises ...358

5.8.1 Operation Time versus Operation Cost, or the Effect of

Varying Setup Time and Batch Size ... 358 5.8.2 The Effect of Cellular Manufacturing on Lead Time Reduction . 359 5.8.3 Line Balancing — Harmonizing the Content of Work ... 361 5.8.4 Calculating the Number of Kanban Cards ... 363 6 Concepts for Product Families and One-of-a-Kind

Production ...365

(23)

6.1 Logistics Characteristics of a Product Variety Concept...367 6.1.1 Standard Product Manufacturing ...368 6.1.2 High-Variety Manufacturing ...370 6.1.3 Low-Variety Manufacturing ...373 6.1.4 Different Variant-Oriented Techniques, the Final Assembly

Schedule, and the Order Penetration Point ...374 6.2 Adaptive Techniques...379 6.2.1 Techniques for Standard Products with Few Options...379 6.2.2 Techniques for Product Families ...384 6.2.3 “Ad Hoc” Derived Variant Structures with One-of-a-Kind

Production According to Customer Specification...387 6.3 Generative Techniques...388 6.3.1 The Combinatorial Aspect and the Problem of Redundant Data ..388 6.3.2 Variants in Bills of Material and Routing Sheets: Production

Rules of a Knowledge-Based System ...391 6.3.3 The Use of Production Rules in Order Processing...393 6.4 Summary ...396 6.5 Keywords ...398 6.6 Scenarios and Exercises ...398 6.6.1 Adaptive Techniques for Product Families...398 6.6.2 Generative Techniques — The Use of Production Rules in

Order Processing...399 6.6.3 Generative Techniques — Setting the Parameters of a Product

Family...399 7 Concepts for the Process Industry...401 7.1 Characteristics of the Process Industry ...403 7.1.1 Divergent Product Structures and By-Products ...403 7.1.2 High-Volume Line Production, Flow Resources, and

Inflexible Facilities ...408 7.1.3 Large Batches, Lot Traceability, and Loops in the Order

Structure ...410 7.2 Processor-Oriented Master and Order Data Management...412 7.2.1 Processes, Technology, and Resources...412 7.2.2 The Process Train: A Processor-Oriented Production Structure...414 7.2.3 Lot Control in Inventory Management ...417 7.2.4 Overlaying of Production Structures ...418 7.3 Processor-Oriented Resource Management ...419 7.3.1 Campaign Planning...419 7.3.2 Processor-Dominated Scheduling versus Material-Dominated

Scheduling ...423 7.3.3 Consideration of a Non-Linear Usage Quantity and of a

Product Structure with Loops ...424 7.4 Special Features of Long-Term Planning...426

(24)

7.4.1 Determining the Degree of Detail of the Master Production Schedule... 426 7.4.2 Pipeline Planning across Several Independent Locations ... 427 7.5 Summary ...431 7.6 Keywords ...432 7.7 Scenarios and Exercises ...433 7.7.1 Batch Production versus Continuous Production... 433 7.7.2 Manufacture of By-Products... 434 7.7.3 Production Planning in Process Industries... 435 8 Logistics Software ...437 8.1 Software Used for Logistics Purposes: An Introduction...437

8.1.1 Definitions and Three Types of Software Used for Logistics Purposes... 437 8.1.2 Scope and Range of Logistics Software... 440 8.2 Contents of Logistics Software Packages ...441

8.2.1 Logistics in a Comprehensive Information System within the Company... 442 8.2.2 Logistics Software to Support Comprehensive Information

Systems within the Company... 444 8.2.3 Software for Customer Order Production or Variant-Oriented

Concepts ... 446 8.2.4 Software for the Process Industry or Processor-Oriented

Concepts ... 448 8.2.5 Software for Transcorporate Planning & Control in a Supply

Chain... 449 8.2.6 Software for Customer Relationship Management (CRM)... 451 8.2.7 Standard or Company-Specific Software? ... 454 8.3 Factors for Successful Implementation of Logistics

Software ...456 8.3.1 History and Origin of Logistics Software ... 457 8.3.2 Possibilities and Limitations of the Computerization of

Planning & Control... 459 8.3.3 Factors that Influence Individual Acceptance and the

Range of Implementation of Logistics Software... 466 8.4 Summary ...470 8.5 Keywords ...472 8.6 Scenarios and Exercises ...472

8.6.1 Factors that Influence People’s Acceptance of

Logistics Software ... 472 8.6.2 Standard or Company-Specific Software... 473 8.6.3 Software for Transcorporate Planning & Control ... 473 Part B. Methods of Planning & Control in Complex Logistics

Systems...475

(25)

9 Demand and Demand Forecast...479 9.1 Overview of Forecasting Techniques...480 9.1.1 The Problem of Forecasting a Demand ...480 9.1.2 Subdivision of Forecasting Techniques ...483 9.1.3 Principles of Forecasting Techniques with Extrapolation of

Time Series and the Definition of Variables...485 9.2 Historically Oriented Techniques for Constant Demand ...490 9.2.1 Moving Average Forecast...491 9.2.2 First-Order Exponential Smoothing Forecast ...493 9.3 Historically Oriented Techniques with Trend-Shaped

Behavior (*) ...497 9.3.1 Regression Analysis Forecast ...499 9.3.2 Second-Order Exponential Smoothing Forecast...500 9.3.3 Trigg and Leach Adaptive Smoothing Technique ...503 9.3.4 Seasonality...505 9.4 Future-Oriented Techniques...507 9.4.1 Trend Extrapolation Forecast ...508 9.4.2 Intuitive Forecasting Techniques...510 9.5 Using Forecasts in Planning...512

9.5.1 Moving Average Forecast versus First-Order Exponential

Smoothing Forecast ...512 9.5.2 Comparison of Techniques and Choice of Suitable Forecasting

Technique ...513 9.5.3 Consumption Distributions and Their Limits, Continuous and

Discontinuous Demand...514 9.5.4 Demand Forecasting of Options of a Product Family...518 9.5.5 Safety Demand Calculation for Various Planning Periods ...519 9.5.6 Translation of Forecast into Quasi-Deterministic Demand and

Administration of the Production or Purchase Schedule ...521 9.6 Summary ...523 9.7 Keywords ...525 9.8 Scenarios and Exercises ...525 9.8.1 Choice of Appropriate Forecasting Techniques...525 9.8.2 Moving Average Forecasting Technique...526 9.8.3 First-Order Exponential Smoothing...527 9.8.4 Moving Average Forecast versus First-Order Exponential

Smoothing Forecast ...528 10 Inventory Management and Stochastic Materials

Management ...529 10.1Stores and Inventory Management...531 10.1.1 Characteristic Features of Stores Management...531 10.1.2 Inventory Transactions ...534 10.1.3 Physical Inventory and Inventory Valuation ...537

(26)

10.2Usage Statistics, Analyses, and Classifications...540 10.2.1 Statistics on Inventory Transactions, Sales, and Bid Activities ... 540 10.2.2 The ABC Classification ... 542 10.2.3 The XYZ Classification and Other Analyses and Statistics... 545 10.3Order Point Technique and Safety Stock Calculation...546 10.3.1 The Order Point Technique... 546 10.3.2 Variants of the Order Point Technique ... 548 10.3.3 Safety Stock Calculation with Continuous Demand ... 551 10.3.4 Determining the Service Level and the Relation of Service

Level to Fill Rate (*)... 558 10.4Batch or Lot Sizing ...564

10.4.1 Production or Procurement Costs: Batch-Size-Dependent Unit Costs, Setup and Ordering Costs, and Carrying Cost... 564 10.4.2 Optimum Batch Size and Optimum Length of Order Cycle:

The Classic Economic Order Quantity ... 568 10.4.3 Optimum Batch Size and Optimum Length of Order Cycle in

Practical Application... 572 10.4.4 Extensions of the Batch Size Formula (*)... 575 10.5Summary ...579 10.6Keywords ...580 10.7Scenarios and Exercises ...581 10.7.1 The ABC Classification ... 581 10.7.2 Combined ABC–XYZ Classification... 582 10.7.3 Safety Stock Variation versus Demand Variation... 583 10.7.4 Batch Size Depending on Stockout Costs (*) ... 583 10.7.5 Effectiveness of the Order Point Technique ... 584 11 Deterministic Materials Management...585 11.1Demand and Available Inventory along the Time Axis...586 11.1.1 Projected Available Inventory ... 587 11.1.2 Projected Available Inventory Calculation ... 591 11.1.3 Scheduling and Cumulative Projected Available Inventory

Calculation... 592 11.1.4 Operating Curves for Stock on Hand ... 595 11.2Deterministic Determination of Independent Demand...597 11.2.1 Customer Order and Distribution Requirements Planning (DRP) 597 11.2.2 Consuming the Forecast by Actual Demand (*) ... 600 11.3Deterministic Determination of Dependent Demand ...602 11.3.1 Characteristics of Discontinuous Dependent Demand... 602 11.3.2 Material Requirements Planning (MRP) and Planned Orders ... 604 11.3.3 Determining the Timing of Dependent Demand and the

Load of a Planned Order ... 609 11.4Batch or Lot Sizing ...611 11.4.1 Combining Net Requirements into Batches... 611 11.4.2 Comparison of the Different Batch-Sizing Policies ... 615

(27)

11.5Analyzing the Results of Material Requirements Planning (MRP)...617 11.5.1 Projected Available Inventory and Pegging...617 11.5.2 Action Messages...619 11.6Summary ...620 11.7Keywords ...622 11.8Scenarios and Exercises ...623 11.8.1 Projected Available Inventory Calculation ...623 11.8.2 MRP Technique: Determining Net Requirements and Planned

Release...624 11.8.3 Order Point Technique versus MRP Technique ...625 12 Time Management and Scheduling ...627 12.1Elements of Time Management ...628 12.1.1 The Order of the Operations of a Production Order ...628 12.1.2 Operation Time and Operation Load ...631 12.1.3 The Elements of Interoperation Time ...633 12.1.4 Administrative Time...634 12.1.5 Transportation Time ...635 12.2Buffers and Queues ...636 12.2.1 Wait Time, Buffers, and the Funnel Model ...637 12.2.2 Queues as an Effect of Random Load Fluctuations ...641 12.2.3 Conclusions for Job Shop Production...644 12.2.4 Logistic Operating Curves...646 12.3Scheduling of Orders and Scheduling Algorithms...648 12.3.1 The Manufacturing Calendar ...649 12.3.2 Calculating the Manufacturing Lead Time ...650 12.3.3 Backward Scheduling and Forward Scheduling ...653 12.3.4 Network Planning ...657 12.3.5 Central Point Scheduling ...660 12.3.6 The Lead-Time-Stretching Factor and Probable Scheduling...661 12.3.7 Scheduling Process Trains...666 12.4Splitting, Overlapping, and Extended Scheduling

Algorithms...667 12.4.1 Order or Lot Splitting ...667 12.4.2 Overlapping ...668 12.4.3 An Extended Formula for Manufacturing Lead Time (*)...669 12.4.4 Extended Scheduling Algorithms (*)...672 12.5Summary ...673 12.6Keywords ...675 12.7Scenarios and Exercises ...675 12.7.1 Queues as an Effect of Random Load Fluctuations (1) ...675 12.7.2 Queues as an Effect of Random Load Fluctuations (2) ...676 12.7.3 Network Planning ...677 12.7.4 Backward Scheduling and Forward Scheduling ...678

(28)

12.7.5 The Lead-Time-Stretching Factor and Probable Scheduling ... 680 13 Capacity Management...683 13.1Fundamentals of Capacity Management ...684 13.1.1 Capacity, Work Centers, and Capacity Determination ... 684 13.1.2 Overview of Capacity Management Techniques ... 688 13.2Infinite Loading...690 13.2.1 Load Profile Calculation ... 691 13.2.2 Problems Associated with Algorithms for Load Profile

Calculation... 694 13.2.3 Methods of Balancing Capacity and Load ... 696 13.2.4 Order-Wise Infinite Loading... 699 13.3Finite Loading ...700 13.3.1 Operations-Oriented Finite Loading ... 700 13.3.2 Order-Oriented Finite Loading ... 705 13.3.3 Constraint-Oriented Finite Loading ... 712 13.4Rough-Cut Capacity Planning...716 13.4.1 Rough-Cut Network Plans and Load Profiles... 717 13.4.2 Rough-Cut Infinite Loading... 720 13.4.3 Rough-Cut Finite Loading ... 724 13.5Summary ...727 13.6Keywords ...728 13.7Scenarios and Exercises ...729 13.7.1 Capacity Determination ... 729 13.7.2 Algorithms for Load Profile Calculation ... 731 13.7.3 Rough-Cut Capacity Planning ... 733 14 Order Release and Control ...737 14.1Order Release ...738

14.1.1 Order Proposals for Production and Procurement and Order Release... 739 14.1.2 Load-Oriented Order Release (Loor)... 743 14.1.3 Capacity-Oriented Materials Management (Corma)... 751 14.2Shop Floor Control...759 14.2.1 Issuance of Accompanying Documents for Production ... 760 14.2.2 Operations Scheduling, Dispatching, and Finite Forward

Scheduling ... 765 14.2.3 Sequencing Methods... 769 14.3Order Monitoring and Shop Floor Data Collection...770 14.3.1 Recording Issues of Goods from Stock... 770 14.3.2 Recording Completed Operations... 771 14.3.3 Progress Checking, Quality Control, and Report of Order

Termination... 772 14.3.4 Automatic and Rough-Cut Data Collection ... 774

(29)

14.4Distribution Control ...777 14.4.1 Order Picking...778 14.4.2 Packaging and Load Building...781 14.4.3 Transportation to Receiver ...786 14.5Summary ...791 14.6Keywords ...792 14.7Scenarios and Exercises ...793 14.7.1 Load-Oriented Order Release (Loor)...793 14.7.2 Capacity-Oriented Materials Management (Corma)...795 14.7.3 Finite Forward Scheduling ...795 14.7.4 Order Picking...797 15 Cost Estimating, Job-Order Costing, and Activity-Based

Costing ...799 15.1Costs, Cost Elements, and Cost Structures...801 15.1.1 Actual, Direct, and Indirect Costs...801 15.1.2 Average Costs and Standard Costs ...803 15.1.3 Variable Costs and Fixed Costs ...804 15.1.4 Cost Accumulation Breakdown: The Cost Breakdown

Structure of a Product ...805 15.2Cost Estimating ...811 15.2.1 An Algorithm for Cost Estimation of Goods Manufactured...811 15.2.2 Representation of the Cost Accumulation and Comprehensive

Calculation for a Product Line...814 15.3Job-Order Costing ...815 15.3.1 Actual Quantities and Actual Costs ...815 15.3.2 Cost Analysis...817 15.3.3 The Interface from Order Management to Cost Accounting ...818 15.4Activity-Based Costing ...820 15.4.1 Limits of Traditional Product Costing ...820 15.4.2 Introducing Activity-Based Costing: Aim, Basic Premise,

Requirements, and Technique...822 15.4.3 Typical Processes (Activities) and Process Variables ...826 15.4.4 Activity-Based Product Cost Estimation ...828 15.5Summary ...832 15.6Keywords ...833 15.7Scenarios and Exercises ...834 15.7.1 Job-Order Costing...834 15.7.2 Activity-Based Costing...836 15.7.3 Comparing Job-Order Costing and Activity-Based Costing...838 16 Representation and System Management of Logistic

Objects ...839

(30)

16.1Order Data in Sales, Distribution, Production, and

Procurement ...841 16.1.1 Customers and Suppliers... 841 16.1.2 The General Structure of Orders in Sales and Distribution,

Production, and Procurement... 842 16.1.3 The Order and Partial Order Header ... 846 16.1.4 The Order Position... 847 16.1.5 Inventories and Inventory Transactions ... 849 16.2The Master Data for Products and Processes ...850 16.2.1 Product, Product Structure, Components, and Operations ... 851 16.2.2 Item Master... 854 16.2.3 Bill of Material, Bill of Material Position, and Where-Used List 857 16.2.4 Work Center Master Data ... 865 16.2.5 The Work Center Hierarchy... 866 16.2.6 Operation and Routing Sheet ... 868 16.2.7 Production Equipment, Bill of Production Equipment,

and Bill of Tools ... 870 16.2.8 Overview of the Basic Master Data Objects ... 871 16.3Extensions Arising from Variant-Oriented Concepts...873 16.3.1 Expert Systems and Knowledge-Based Systems ... 873 16.3.2 Implementation of Production Rules ... 876 16.3.3 A Data Model for Parameterized Representation of a Product

Family (*) ... 878 16.4Extensions Arising from Processor-Oriented Concepts ...881

16.4.1 Process, Technology and the Processor-Oriented Production Structure... 881 16.4.2 Objects for Lot Control... 883 16.5The Management of Product and Engineering Data ...884 16.5.1 Engineering Data Management... 884 16.5.2 The Engineering Database as Part of a Computerized System .... 886 16.5.3 Data and Functional Model for General EDM Tasks... 888 16.5.4 Object Classes and Functions for Release and Engineering

Change Control (*) ... 891 16.6Summary ...893 16.7Keywords ...894 16.8Scenarios and Exercises ...895 16.8.1 Different Forms of Representing Bills of Material ... 895 16.8.2 Where-Used Lists ... 896 16.8.3 Basic Master Data Objects... 896 Part C. Overview of Further Management Systems in the

Enterprise ...897 17 Quality Management – TQM and Six Sigma ...901 17.1Quality: Concept and Measurement ...901

(31)

17.1.1 Quality of Processes ...902 17.1.2 Quality of Products...904 17.1.3 Quality of Organizations...905 17.1.4 Quality and Its Measurability ...907 17.1.5 Quality Measurement and Six Sigma ...909 17.2Quality Management Tasks at the Operations Level ...910 17.2.1 The Deming Cycle (PDCA Cycle) and the Shewhart Cycle...911 17.2.2 The Six Sigma Phases...912 17.2.3 Quality Planning – Define Phase ...914 17.2.4 Quality Control, Part 1 – Measure and Analyze Phases ...919 17.2.5 Quality Control, Part 2 – Improve Phase, Part 1...920 17.2.6 Quality Assurance – Improve Phase, Part 2...922 17.2.7 Quality Activation – Control Phase ...924 17.2.8 Project Management, Continuous Improvement, and

Reengineering...926 17.3Quality Management Systems...928 17.3.1 Standards and Norms of Quality Management: ISO 9000:2000...929 17.3.2 The Optimization Paradigm: Models and Awards for Total

Quality Management ...931 17.3.3 Audits and Procedures for Assessing the Quality of

Organizations...934 17.3.4 Benchmarking...936 17.4Summary ...937 17.5Keywords ...938 18 Systems Engineering and Project Management...939 18.1Systems Engineering ...941 18.1.1 Systems Thinking and the Top Down Approach ...942 18.1.2 System Phases and System Life Cycle ...944 18.1.3 The Problem Solving Cycle...947 18.1.4 Differences between Software Engineering and Classical

Systems Engineering ...950 18.2Project Management...952 18.2.1 Goals and Constraints of a Project...952 18.2.2 Project Phase, Project Life Cycle, and Work Breakdown

Structure ...953 18.2.3 Project Scheduling and Effort Planning...956 18.2.4 Project Organization ...959 18.2.5 Project Cost, Benefits, Profitability, and Risk ...962 18.3Summary ...967 18.4Keywords ...968 References...969 Author’s Note...1034

(32)

Part A. Concepts, and Fundamentals of Design of Integral Logistics

Management

Logistics management is operational management. This means implemen- ting ideas, concepts, and methods that have the potential to increase the effectiveness and efficiency of company performance. The symbol below aims to express the idea.

Magic formulas, catchwords, and simplifying theories do not stand much of a chance in logistics management. The complex reality of day-to-day operation of companies in industry and the service sector demands highly diligent detailed work. Here, in contrast to some strategic concepts in company management, the proof of truth — namely, effectiveness — shows up quickly and measurably. Errors in logistics management rapidly produce dissatisfied customers and employees, and thus poor business results. This immediacy and measurability do not make it easy to shift the blame to others.

On the other hand, logistics tasks offer a variety of possible solutions. This is an area that calls for human creativity, drive, and perseverance. Methods of planning & control in company logistics, and particularly computer- supported tools, are after all merely supporting aids. Moreover, experience has shown repeatedly that the successful use of methods and tools depends heavily upon the people who implement them.

The eight chapters of Part A of the book deal with logistics management as embedded in the entrepreneurial activities of developing, manufacturing,

(33)

using, and disposing goods. The focus is on the objectives, basic principles, analyses, concepts, systems, and systematic methods of the management and design of logistics systems both within companies and in company networks. We introduce planning & control tasks and develop the methods used to fulfill those tasks in two simple but important cases:

master planning and repetitive manufacturing. Part B, in eight further chapters, treats the methods of planning & control in complex logistics.

These are the methods used in all temporal ranges of planning & control.

In addition, the detailed discussion of methods to solve the planning &

control tasks in Part B provides the reader with an in-depth methodological foundation for understanding the concepts in part A.

Some notes to the reader:

• Definitions of key concepts and terms appear in text boxes, and the terms being defined always appear in italics.

• The definitions of terms sometimes take the form of an indented bullet list. This form is useful particularly where one and the same characteristic has varying degrees of expression.

• A gray background highlights important principles, examples, points to remember, prescribed procedures, steps of a technique, or solutions of selected scenarios and exercises. The reader will often find a reference to a figure.

• Some sections of the book are not essential reading for an understanding of the subsequent material. An asterisk (*) identifies these optional sections.

• Also optional in this sense are the additional definitions provided in footnotes. They appear for the sake of completeness or as information for practitioners or for readers coming from related disciplines.

We use the following abbreviations in the text:

• R&D for “research and development”

• ID for “identification” (for example, item ID)

For our interactive elements, as well as for additional teaching material, please refer to: http://www.intlogman.lim.ethz.ch/. In addition, a visit to our web site could be helpful: http://www.lim.ethz.ch/index_en.htm.

Please direct questions or comments to Paul.Schoensleben@ethz.ch.