Long-term capacity strategy
High levels of investment and looking at the network level
(Usually CAPEX intensive)
We can change the SC network structures by:
* Building, Leasing, re-locate or divesting facilities, e.g. warehouses, plants and hubs, terminals etc.
* Re-balance inventories geographically and in volumes
* Changing the strategic focus (targets)
* Changing partners in the network – up- & downstream
Short-term capacity planning
Looking at day-to-day changes at the floor level
(Usually OPEX intensive)
We can change the SC execution by:
* People can be hired/laid off
* Overtime/short time
* Shifts can be added or removed
* Local Inventory can be build up
* Work can be subcontracted
Capacity in relation to the MPC
- PPL -> Resource Plan: long-term capacity planning. Involves changes in staffing, capital equipment and other facility changes.
- MPS -> Rough-Cut Capacity Plan (RCCP): checks whether critical resources are available to support the preliminary MPS. Critical resources include bottleneck operations, labour, and critical materials.
- MRP -> Capacity Requirements Plan (CRP): focuses on component parts, greater detail is involved than in rough-cut capacity planning. It is concerned with individual orders at individual work centers and calculates work center loads and labor requirements for each time period at each work center.
- PAC -> Capacity Control: monitoring production, comparing with the capacity plan, and taking appropriate corrective actions.
Load
The amount of planned work scheduled for and actual work released to a facility, work center, or operation for a specific span of time. This is usually expressed in terms of standard hours of work or, when items consume similar resources at the same rate, units of production
Demonstrated capacity
MEASURED
The historical output of a work center
We don’t calculate the output, but we just look at historical records
Required capacity
Capacity needed to produce a desired output in a given time period
Capacity requirements planning at MRP level: the process of determining in detail the amount of labor and machine resources needed to achieve the required production.
Rated capacity
CALCULATED
Capacity available taking into account utilization and efficiency of the individual work center
Utilisation
The percentage of the time that the work center is active compared to the available time
Efficiency
There is a standard working pace; although workers might be working at a faster or slower pace, causing the efficiency at the work center to be more or less than 100%
Sourcing strategy
A plan or approach used by an organization to identify, evaluate, and engage suppliers for acquiring goods and services. It aims to ensure that the organization obtains the best possible products and services at the most favorable terms
Four types:
1. Partnership: mutual commitment in a long-term relationship = STRATEGIC
2. Competitive bidding: obtain “best deal” for short term = LEVERAGE
3. Secure supply: secure short- and long-term supply and reduce supply risk = BOTTLENECK
4. Reducing operational complexity: reduce logistics complexity, improve operational efficiency and reduce number of suppliers = ROUTINE
Dutch Windmill
A combination of buyer’s purchasing portfolio and supplier’s customer portfolio, leading to 16 different business-to-business relationships, each of which calls for a different sourcing strategy
SEE MODEL
Product segments in terms of sourcing strategies (portfolio analysis = Kraljic)
- Routine/non-critical items (e.g. office supplies)
- Low supply risk (many suppliers)
- Low financial impact
Approach: delegate authority to individual departments - Leverage items (e.g. plastic for LEGO)
- Low supply risk (many suppliers)
- High financial impact
Approach: negotiate price and choose the cheapest supplier - change supplier if other suppliers offer a cheaper price - Bottleneck items (e.g. the power pack for a laptop)
- High supply risk (few suppliers)
- Low financial impact
Approach: make long-term contracts with suppliers, while investigating the market for other suppliers to reduce dependency - Strategic items (e.g. chipsets for mobile phones)
- High supply risk (few suppliers)
- High financial impact (expensive items which differentiate firm from competitors)
Approach: collaboration and strategic partnerships, as well as investment in suppliers or vertical integration
Competitive position of the supplier
Determined by e.g. the number of current suppliers for the category of products, supplier switching cost, number of substitute products/services etc.
Customer attractiveness
Determined by e.g. profit margin, promise of future growth, access to new technologies (NPD projects) etc.
Customer segments
- Core segment: Suitable for building long-term relationship. Both parties invest time and money in this relationship. Can end out in joint development.
- Development segment: Supplier is in a weak position. Supplier tries to give as much value-adding to the customer as possible to make sure they are chosen above the other competitors/suppliers.
- Exploitation segment: Supplier is in a strong position. Buyer is dependent on the supplier due to lack of alternatives. Supplier exploit they strong position when setting prices.
- Nuisance segment: Buyer can easily switch supplier. Long-term relationships are difficult to establish. Buyer chooses supplier based on lowest price.
The purpose of the Dutch Windmill
Understanding the dependence of both parties to prevent disappointment, since “(…) combining both the buyer’s portfolio and the supplier’s portfolio leads to more realistic expectations and plans with regard to future buyer–seller collaboration.”
It is not enough to simply evaluate suppliers, we also need to be attractive customers to suppliers (trade-off), looking at the bargaining power of each party
