1. Instructor: Spyros Reveliotis e-mail: spyros@isye.gatech.edu homepage: www.isye.gatech.edu/~spyros GaTech / SJTU Dual MS: IE6201& IE6203 Summer 2008

2. “Course Logistics” My Office Hours: Wednesday 10-11:30am or by appointment Course Prerequisites: ISYE 6650 and ISYE 6669 Grading policy: –Homework: 0% –Midterm: 40% –Final: 60% –Exams closed-book, with 3 pages of notes for the midterm exam and 6 pages for the final. Reading Materials: –Course Textbooks: –IE6201: W. Hopp and M. Spearman, Factory Physics, 2nd or 3rd ed., McGraw Hill / IRWIN –IE6203: D. Simchi-Levi, X. Chen and J. Bramel, The logic of Logistics, 2 nd ed., Springer, 2005. –Course slides and any other material posted at my website or the GaTech library electronic reserves. –In general, textbooks will have a complementary role to the material presented in class.

3. Course Objectives (What this course is all about?) How to design and operate contemporary production and distribution systems (and more…) –A systematic, conceptual exposition of the design, planning and control problems that arise in the context of the aforementioned facilities. –A formal analysis of these problems based on concepts and techniques borrowed from Deterministic and Stochastic Operations Research. –Development of practical guidelines and frameworks for the design and operation of these systems, that derive from the aforementioned analysis.

4. Reading Assignment Chapters 0, 6 and 1 from Factory Physics Chapter 1 from the Logic of Logistics

5. Our abstraction of the Production System Production System: A transformation process (physical, locational, physiological, intellectual, etc.) Organization InputsOutputs Materials Capital Labor Manag. Res. Goods Services The production system as a process network Stage 5 Stage 4 Stage 3 Stage 2Stage 1 SuppliersCustomers

6. Productivity: Basic Organizational Performance Measure Productivity = Value produced / Input used = Output / (Labor + Material + Capital + Energy + Miscellaneous) Remarks: Typically both the numerator and the denominator are measured in $$$. If the output corresponds to actual sales, then productivity measures both effectiveness (doing the right thing) and efficiency (in the right way). From an economic standpoint, major emphasis is placed on the annual percentage change (hopefully increase) of productivity. For the entire US economy, the annual increase in productivity is higher than 2.5% (38% of this increase is due to capital improvements, 10% to labor improvements and 52% to management improvements). For the Chinese economy, this number has been more than 6% lately!

7. Major Productivity Variables and their contribution to productivity increase Labor –Better basic education –Better diet –Better social infrastructure like transportation and sanitation –Better labor utilization and motivation Capital –Steady and well-planned investments on equipment and its timely maintenance –Research & Development –Controlling of the cost of capital Management –Exploitation of new (information) technologies –Utilization of accumulated knowledge –Education Knowledge Society

8. Operations Management (OM) Definition: The study and improvement / optimization of the set of activities that create goods and services in an organization. Typical issues addressed: Service and product selection and design Quality Management Process and capacity design Facility design Facility Location Human resources and job design Inventory management Production planning and control Maintenance Supply-chain management

9. Course Outline for IE6201 Corporate Mission and Strategy and their interconnection to the supply chain operations Workflow Analysis and Control in Contemporary Production Systems –The basic workflow structure in Discrete Part Manufacturing –Manufacturing System layouts –Flow lines as the preferred layout for discrete-part, repetitive manufacturing –Flow line classification: Push vs. Pull, Synchronous vs. Asynchronous transfer lines, KANBAN and CONWIP-based production systems

10. Course Outline for IE6201 (cont.) Elements of Queueing Theory –Little’s law and some other fundamental properties of queueing systems –Single-station Exponential models –Networks of Queues –The M/G/1 queue and its variations –The G/G/1 queue –Multi-server queues Factory Physics –Modeling of asynchronous transfer lines as series of G/G/m queues –Incorporating operational detractors –Employing the derived model for ATL diagnosis and design –Design of synchronous transfer lines: the Assembly Line Balancing problem –Modeling and analysis of CONWIP lines as closed queueing networks –A unifying framework: the fundamental exchange curves of manufacturing flow lines and their implications

11. Course Outline for IE6201 (cont.) Introduction to scheduling theory and batching –Overview of prevailing practices in sequencing and scheduling –Dispatching rules: motivation and some basic analytical results –Some more sophisticated approaches to production scheduling Branch & bound based approaches The Shifting bottleneck heuristic Workload-based dynamic scheduling policies –Optimized batching policies The philosophy of Just-In-Time and its current evolution to Lean Manufacturing Introduction to DES-based models of flexible manufacturing systems (time permitting)

12. Course Outline for IE6203 Corporate Mission and Strategy and their interconnection to the supply chain operations (same as in IE6201) Deterministic and Stochastic Inventory Control theory –The basic EOQ model and some of its variants –Replenishment coordinating approaches –Dynamic Lot Sizing –Statistical Inventory Control Models The News Vendor Model The Base Stock Model The (Q,r) Model –An introduction to multi-echelon models –Integration of Inventory Control with Pricing Policies (time permitting)

13. Course Outline for IE6203 (cont.) Supply Coordination Models –Contract Design Supply Chain Design and Control –Classical Hierarchical Production Planning Models based on Time- based Decomposition –Supply Chain Network Design –Facility Location Vehicle Routing Problems and Models

14. The major functional units of a modern organization Strategic Planning: defining the organization’s mission and the required/perceived core competencies Production/ Operations: product/service creation Finance/ Accounting: monitoring of the organization cash-flows Marketing: demand generation and order taking

15. Examples (borrowed from Heizer & Render)

16. Fit Between Corporate and Functional Strategies (Chopra & Meindl) Corporate Competitive Strategy Supply Chain or Operations Strategy Product Development Strategy Marketing and Sales Strategy Information Technology Strategy Finance Strategy Human Resources Strategy

17. Corporate Mission The mission of the organization –defines its purpose, i.e., what it contributes to society –states the rationale for its existence –provides boundaries and focus –defines the concept(s) around which the company can rally Functional areas and business processes define their missions such that they support the overall corporate mission in a cooperative and synergistic manner.

18. Corporate Mission Examples Merck: The mission of Merck is to provide society with superior products and services-innovations and solutions that improve the quality of life and satisfy customer needs-to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return. FedEx: FedEx is committed to our People-Service-Profit philosophy. We will produce outstanding financial returns by providing totally reliable, competitively superior, global air-ground transportation of high-priority goods and documents that require rapid, time-certain delivery. Equally important, positive control of each package will be maintained utilizing real time electronic tracking and tracing systems. A complete record of each shipment and delivery will be presented with our request for payment. We will be helpful, courteous, and professional for each other, and the public. We will strive to have a completely satisfied customer at the end of each transaction.

19. Defining the Corporate Strategy Differentiation (Quality; Uniqueness; e.g., Luxury cars, Fashion Industry, Brand Name Drugs) Cost Leadership (Price; e.g., Wal-Mart, Southwest Airlines, Generic Drugs) Responsiveness (Reliability; Quickness; Flexibility; e.g., Dell, Overnight Delivery Services) Competitive Advantage through which the company market share is attracted

20. Defining the Corporate Strategy Corporate Strategy: The organization’s positioning in terms of –responsiveness, –cost leadership and –product differentiation requirements, i.e., the sought competitive advantage(s). The corporate strategy dictates the detailed strategies for each functional area (i.e., Operations, Finance, Marketing) but it is also affected by those areas. Collectively, all these strategies seek to exploit (external) opportunities and (internal) strengths, neutralize (external) threats, and address (internal) weaknesses

21. The operations frontier, trade-offs, and the operational effectiveness Differentiation Cost Leadership Responsiveness

22. Factors affecting Corporate Strategy External –Emerging strengths and weaknesses of competitors => new threats and opportunities, respectively –New industry entrants –Development of substitute products –Development of new technologies –Legal developments (e.g., environmental concerns and regulations) –Economic and political developments (e.g., new international agreements, political crises) Internal –Company politics and restructuring –Modified relationships with customers and suppliers –Product Life Cycle

23. Strategy and Issues during a Product’s Life (J. Heizer & B. Render, “Operations Management”, Prentice Hall) Introduction GrowthMaturityDecline Time Sales Best period to increase market share R&D engineering critical Frequent product and process changes Short production runs High production costs Limited models Attention to quality Practical to change price or quality image Strengthen niche Forecasting critical Products and process reliability Increase capacity Shift towards product focus Enhance distribution Poor time to change image, price or quality Competitive costs become critical Defend market position Standardization - minor product changes Optimum capacity Process stability Long production runs Cost control critical Little product differentiation Overcapacity in the industry Reduce capacity and eventually prune line to eliminate items not returning good margin

24. The primary “drivers” for achieving strategic fit in Operations Strategy (adapted from Chopra & Meindl) Corporate Strategy Operations Strategy EfficiencyResponsiveness FacilitiesInventoryTransportationInformation Market Segmentation

25. The role of Facilities Facilities: The locations where inventory is –processed and transformed into another state (manufacturing) or –staged before being shipped to the next stage (warehousing) In general, centralization boosts efficiency, while decentralization boosts responsiveness Primary decisions: –Location Proximity to the customer Proximity to resources Access to markets (ability to circumvent quotas and tariffs) Infrastructure Operational costs and tax incentives –Capacity Capital cost vs. responsiveness –Operations Methodology for Manufacturing Facilities Product vs. functional focus Flexible vs. dedicated capacity –Warehousing methodology Storage modes and material flow organization Cross-docking

26. The role of Inventory Primary inventory components: –Raw Material –Work In Process (WIP) –Finished Goods It exists because of the finiteness of the production and transportation rates (Little’s Law: I=TH*T) Types of Inventory –Safety Inventory: It is used to deal with the randomness in the experienced demand; it is set so that it helps the supply chain meet some “service level” (i.e., control the probability that no stock-out will be experienced at any replenishment cycle). –Seasonal Inventory: It is used to help the supply chain deal with predictable variability in demand. –Cycle Inventory: It is incurred in an effort to control the impact of “fixed” ordering and set-up costs. –Opportunistic Inventory: Takes advantage of “bargains”. Sourcing: Determine the set of suppliers / subcontractors to be used, and develop the contracts that will govern the relationship.

27. The role of Transportation Transportation: The SC element that moves product between its different stages. Primary decisions: –Mode(s) of Transportation Air: fastest but most expensive Truck: Relatively quick, inexpensive and very flexible mode Rail: Inexpensive mode to be used for large quantities Ship: Slowest but often the most economical choice for large overseas shipments Pipeline: Used (primarily) for oil and gas Electronic transportation: for goods as music and movies –Route and Network Selection –In-house or Outsource to some 3PL provider

28. The role of Information Information exchange is necessary for the most extensive modes of coordination sought in contemporary supply chains. It allows the supply chain to improve simultaneously its efficiency and responsiveness. Information-related decisions –Push vs. pull –Extent and modes of information sharing and coordination –Forecasting and Aggregate Planning schemes –Pricing and revenue management policies –Enabling Technologies: Electronic Data Interchange (EDI): Enables paperless transactions, primarily for “backend” operations of the SC. The Internet and the WWW. Enterprise Resource Planning (ERP): enables transactional tracking and global visibility of information in the SC. Supply Chain Management (SCM) software: decision support tools.

29. The role of Market Segmentation Need to develop different strategies for different geographical or market segments that align to the preferences and attitudes of the corresponding customer bases. Need to align the provided products and services, as well as the deployed production and business functions, to the local culture and ethics. Supporting practices –broader product lines –globalized operations –(mass-)customization Need to manage the resulting complexity. –Modularity –Combinatorial customization –Design for postponement