IELM4200

Basics of Supply-Chain
Management
IELM 4200, Fall 2011
Dr. Emily Au
Dept. of IELM, HKUST

Note02: Basics of OM

1

What is a supply chain?
• A supply chain is a goal-oriented network of _________ and ____________ used to deliver goods and services to customers.

Fundamental activity: flow of entities through processes
Note02: Basics of OM

2

Key performance measures
•

Throughput (TH): the rate at which entities are processed by the system.

•

Work in Process (WIP): the number of entities in the system, which can be measured in physical units (e.g., parts, people, jobs) or financial units (e.g., dollar value of entities in system).

•

Cycle Time (CT): the time it takes an entity to traverse the system, including any rework, restarts due to yield loss, or other disruptions.

Note02: Basics of OM

3

Part I:
TH, CT and WIP

Note02: Basics of OM

4

Little’s Law
• Over the long-term, average WIP, TH, and CT for any stable process are related according to:

• A simple example:
Consider a firm’s accounts receivable. Suppose that the firm bills an average of $10,000 per day and the customers take 45 days on average to pay. Then what is the total amount of outstanding accounts receivable on average?

Note02: Basics of OM

5

TH, CT and WIP
• What do we want (high or low)?
– TH

– CT

– WIP

Note02: Basics of OM

6

The Philosophy of “Just In Time”
• “WIP is the root of all evil.”
– Increase material handling cost
– Reduce cash flow
– Preventing continuous improvement

Note02: Basics of OM

7

Push vs. Pull
• Push system: customers • Pull system

customers

Note02: Basics of OM

8

JIT and Pull system in practice
• Global Fulfillment Network in Dell

Note02: Basics of OM

9

Kanban Systems
• Purpose of a Kanban System
1.
2.
3.
4.

Authorize production
Authorize movement.
Limits amount of inventory in the system.
A tool for driving continuous