An-Najah National University

Faculty of Engineering & IT

Industrial Engineering Department
Course Name:
Introduction to Industrial Engineering
Course #:
10631202
Second Semester 2017/2018
Prepared by: Eng. Tamer Haddad
Instructor: Eng. Tamer Haddad 1
Second Semester 2017/2018
 Chapter Five

Supply Chain Management:

The Interface with the
Customer

Instructor: Eng. Tamer Haddad

Second Semester 2017/2018 2
 5.1 Introduction to the
Customer Interface & Design
• Supply chains are a collection of organizations linked
to each other by customer-supplier relationships.

• The supply chain has many interfaces between

customers and suppliers, and the efficient design and
management of these interfaces is a key to the
success of each link in the chain, and to the success
of the whole chain.

Instructor: Eng. Tamer Haddad 3

Second Semester 2017/2018
 5.1 Introduction to the
Customer Interface & Design
• Relationship forms:

1) On-time order
2) Long-time relationships

Instructor: Eng. Tamer Haddad 4

Second Semester 2017/2018
 5.1 Introduction to the
Customer Interface & Design
• The interface with the customers is very complex; in
addition to needing to share information among
different information systems, it includes the
management of customer orders, as well as activities
that influence customer demand such as advertising,
special sales, quantity discounts, etc.

Instructor: Eng. Tamer Haddad 5

Second Semester 2017/2018
 5.1 Introduction to the
Customer Interface & Design
• In a competitive market, low cost, high quality, and a
short supply time may play a major role, as well as a
fast reaction to changing needs of customers and
changing market conditions (i.e., flexibility).

• The starting point of the customer interface design is

the “voice of the customer” (VOC).

• The interface design focuses on the flow of

information, the flow of material, and decision
making Instructor: Eng. Tamer Haddad 6
Second Semester 2017/2018
 5.1 Introduction to the
Customer Interface & Design
• In many supply chains, a number of different
alternatives are used simultaneously, as each product,
part, and raw material may be managed differently
based on the trade-off between delivery time,
flexibility, quality, and cost.

Instructor: Eng. Tamer Haddad 7

Second Semester 2017/2018
 5.2 The Impact of Inventory
5.2.1 Forecast-Based Orders
• One way to reduce the lead time to customers is to
issue work orders and procurement orders based on
forecasts of future demand.

• When using this policy, inventories of finished goods

that can satisfy future demand are created.

• This policy reduces the delivery time to customers at

the cost of holding inventories.
Instructor: Eng. Tamer Haddad 8
Second Semester 2017/2018
 5.2 The Impact of Inventory
5.2.1 Forecast-Based Orders
• Benefits:

1) It is possible to offer customers a short delivery time,

if a large enough inventory is carried to cover future
demand.

2) Standard products can be produced in large

quantities and benefit from economies of scale that
enable high efficiency and low cost.
Instructor: Eng. Tamer Haddad 9
Second Semester 2017/2018
 5.2 The Impact of Inventory
5.2.1 Forecast-Based Orders
• Shortcomings:

1) Inventory holding cost may be substantial.

2) There is a risk that stocked items will be damaged,
stolen, perish, or even become obsolete
3) Stock of standard products reduces flexibility
4) Inventory creates costs associated with storage,
maintenance, etc.

Instructor: Eng. Tamer Haddad 10

Second Semester 2017/2018
 5.2 The Impact of Inventory
5.2.2 Production to Order
• This policy is based on issuing a purchase order or a
work order when a customer order is received.

• In some cases, the product design is also done at the

request of the customer (design to order)

Instructor: Eng. Tamer Haddad 11

Second Semester 2017/2018
 5.2 The Impact of Inventory
5.2.2 Production to Order
• Advantages:

1. Saving costs associated with holding inventory.

2. The flexibility to accommodate special requests—a
unique product can be produced on request.

Instructor: Eng. Tamer Haddad 12

Second Semester 2017/2018
 5.2 The Impact of Inventory
5.2.2 Production to Order
• Disadvantages:

1. Long lead time, including the time required for

procurement and delivery of raw materials,
production time, assembly time, packaging, and
transportation to the customer.
2. Production is typically done in small quantities, so
there is no economies of scale, resulting in a
relatively high cost.
Instructor: Eng. Tamer Haddad 13
Second Semester 2017/2018
 5.2 The Impact of Inventory
5.2.3 Assemble to Order
• Assemble to order compromises between the two
extreme policies as discussed previously.

• In this case, certain types of raw materials, parts, or

subassemblies are kept in inventory but the assembly
of final products begins only after an order is placed
by the customer

Instructor: Eng. Tamer Haddad 14

Second Semester 2017/2018
 5.2 The Impact of Inventory
5.2.3 Assemble to Order
• The assembly time is short, and a large number of
combinations are possible, so there is no point in
having all possible combinations in stock.

• The resulting flexibility is high.

• If a customer is interested in a component that is not

kept in inventory, delivery time will be longer due to
the need to order and receive this unique part.
Instructor: Eng. Tamer Haddad 15
Second Semester 2017/2018
 5.2 The Impact of Inventory
5.2.4 Customer Interface Policy Considerations
• The policy depends on: the product and the market.

• The same product may, therefore, be produced in

some markets based on demand forecasts to ensure
fast delivery time; while in other markets, the same
product may be produced on the basis of actual
customer orders.

Instructor: Eng. Tamer Haddad 16

Second Semester 2017/2018
 5.2 The Impact of Inventory
5.2.4 Customer Interface Policy Considerations

• Technology can play an important role in this

decision. If a single raw material is used to produce a
variety of end products, and the supply time of the
raw material is relatively long, it may be best to
maintain a large stock of this raw material.

Instructor: Eng. Tamer Haddad 17

Second Semester 2017/2018
 5.2 The Impact of Inventory
5.2.4 Customer Interface Policy Considerations

• An important consideration in this analysis is the

shelf life of the final products, raw materials, parts,
and components.

Instructor: Eng. Tamer Haddad 18

Second Semester 2017/2018
 5.3 Bill of Materials

• The information on the product structure, such as

what parts, raw materials, and subassemblies are
needed to manufacture the product, is organized in
the form of a bill of material (BOM).

Instructor: Eng. Tamer Haddad 19

Second Semester 2017/2018
 5.3 Bill of Materials
Example:

Instructor: Eng. Tamer Haddad 20

Second Semester 2017/2018
 5.4 Master Production Schedule
• The master production schedule (MPS) is a list
detailing future gross requirements of end products
(products sold to customers) scheduled for
production in each of the future periods within the
planning horizon.

• This list serves as a plan that specifies the

requirements for each type of final product, and the
quantity that the company plans to manufacture in
each period in the planning horizon.

Instructor: Eng. Tamer Haddad 21

Second Semester 2017/2018
 5.4 Master Production Schedule
• The MPS interface encompasses marketing,
purchasing, and operations.

• The MPS is based on future market demand in the

form of customer orders, in the form of forecasts, or
a combination of the two.

• The management of the MPS is an important task in

the delivery process because the MPS reflects future
commitments to customers and the allocation of
production capacity to different products in future
time periods.
Instructor: Eng. Tamer Haddad 22
Second Semester 2017/2018
 5.4 Master Production Schedule
• Integrated management of the MPS requires a joint
effort of marketing, inventory management,
manufacturing, and purchasing.

• MPS Aspects:
1) Introduction of new requirements based on customer
orders or forecasts.
2) Updating of existing requirements in the MPS.
3) Monitoring and control of actual production and
delivery compared to the MPS plans and taking
corrective actions when needed
Instructor: Eng. Tamer Haddad 23
Second Semester 2017/2018
 5.4 Master Production Schedule

• Example:

Instructor: Eng. Tamer Haddad 24

Second Semester 2017/2018
5.5 Delivery Time and Time-Based Competition

• Ensuring shorter delivery time to customers improves

the competitiveness of the organization and its ability
to obtain new business (Zhang, 2003).

• The total delivery lead time is composed of several

components.

• In time-based competition, the goal is to shorten the

lead time as much as possible (Nicholas, 2010).

Instructor: Eng. Tamer Haddad 25

Second Semester 2017/2018
5.5 Delivery Time and Time-Based Competition

• The organization that strives to improve its

performance in the time domain has to examine the
activities performed during the delivery process,
including activities related to the flow of information,
the flow of material, and the decision-making
processes (Blackburn, 1991).

• When the delivery process is well designed and well

executed, marketing people can commit to a due date
knowing that the required products will be supplied
on time, to ensure customer satisfaction and loyalty.
Instructor: Eng. Tamer Haddad 26
Second Semester 2017/2018
5.5 Delivery Time and Time-Based Competition
• In order to shorten the delivery time, organizations
try to examine and improve every activity related to
data processing, decision making, and physical
processing of materials.

• This effort concentrates on the following four targets:

1) Eliminating unnecessary activities
2) Shortening the duration of necessary activities
3) Minimizing delays before, during, and after each
activity
4) Minimizing dependencies between activities so that
activities can be performed in parallel.
Instructor: Eng. Tamer Haddad 27
Second Semester 2017/2018
 5.6 Avoiding Unnecessary Activities
• A critical examination of all the activities in the
delivery process is a good starting point.

• “What is the added value of each activity????”

• It is not always possible to eliminate activities that do

not add value to the customer.

• The goal is to reach the minimum possible

transportation, materials handling, and the storage of
materials (Rother et al., 2003).
Instructor: Eng. Tamer Haddad 28
Second Semester 2017/2018
5.7 Shortening the Duration of Value-Added
and Necessary Activities
• After identifying all nonvalue added activities that
can be eliminated and taking care of them, the next
step focuses on value added activities in an effort to
shorten their duration and reduce their cost.

• Data processing and decision-making activities are

also analyzed. (e.g. RFID, speech recognition, or
barcode readers)

Instructor: Eng. Tamer Haddad 29

Second Semester 2017/2018
5.7 Shortening the Duration of Value-Added
and Necessary Activities
• Development of appropriate information systems and
decision support systems, and integration of these
systems with databases and model bases allow
further reduction in the duration of the delivery
process.

Instructor: Eng. Tamer Haddad 30

Second Semester 2017/2018
5.7 Shortening the Duration of Value-Added
and Necessary Activities
5.7.1 Reducing Delays in the Process:
5.7.1.1 Transportation Delays Reasons:

1) Transportation batch sizing.

2) Availability of transportation resources.
3) Poor monitoring and control.

Instructor: Eng. Tamer Haddad 31

Second Semester 2017/2018
5.7 Shortening the Duration of Value-Added
and Necessary Activities
5.7.1 Reducing Delays in the Process:
5.7.1.2 Operations Delays Reasons:

1) Setup time.
2) Process batch sizing.
3) Bottlenecks in the process.

Instructor: Eng. Tamer Haddad 32

Second Semester 2017/2018
5.7 Shortening the Duration of Value-Added
and Necessary Activities
5.7.1 Reducing Delays in the Process:
5.7.1.2 Decision-Making Process Delays Reasons:

1) Uncertainty.
2) Serial decision making.

Instructor: Eng. Tamer Haddad 33

Second Semester 2017/2018
 5.8 Quality-Based Competition
5.8.1 What is Quality?

• The ability to satisfy customers.

• Meeting or exceeding expectations.

• Quality-based competition is an ongoing effort to

translate the VOC or what the customer “wants” into
a design of a product or a service that satisfies the
customers’ needs and expectations.

Instructor: Eng. Tamer Haddad 34

Second Semester 2017/2018
 5.8 Quality-Based Competition
5.8.1 What is Quality?
• Dimensions of Quality:
1. Performance
2. Features
3. Reliability
4. Conformance
5. Durability
6. Serviceability
7. Aesthetics
8. Perceived Quality
Instructor: Eng. Tamer Haddad 35
Second Semester 2017/2018
 5.8 Quality-Based Competition
5.8.2 Quality Function Deployment Model
• The QFD model, which was published by Akao
(1994, 2004) supports the identification and
implementation of customer requirements at every
stage in the development of a new product or service.

• HOUSE OF QUALITY

Instructor: Eng. Tamer Haddad 36

Second Semester 2017/2018
 5.8 Quality-Based Competition
5.8.2 Quality Function Deployment Model
Construction Steps:
1) Identify customer requirements for the product or
service by actively listening to the VOC.

Instructor: Eng. Tamer Haddad 37

Second Semester 2017/2018
 5.8 Quality-Based Competition
5.8.2 Quality Function Deployment Model
Construction Steps:
2) Determine the relative importance (to the customer)
or weight of each requirements (scale of 1-10).

Instructor: Eng. Tamer Haddad 38

Second Semester 2017/2018
 5.8 Quality-Based Competition
5.8.2 Quality Function Deployment Model
Construction Steps:
3) Identify engineering characteristics (parameters) of
the product, which are supposed to meet the
customer’s requirements, and are to be determined
during the design process.

Instructor: Eng. Tamer Haddad 39

Second Semester 2017/2018
 5.8 Quality-Based Competition
5.8.2 Quality Function Deployment Model
Construction Steps:
4) Evaluate the relationships between customer
requirements and technical characteristics.

Instructor: Eng. Tamer Haddad 40

Second Semester 2017/2018
 5.8 Quality-Based Competition
5.8.2 Quality Function Deployment Model
Construction Steps:
5) Determine the importance of each engineering
characteristic as a function of the relative importance
of customer requirements.

Instructor: Eng. Tamer Haddad 41

Second Semester 2017/2018
 5.8 Quality-Based Competition
5.8.2 Quality Function Deployment Model
Construction Steps:

6) The relative weight of the engineering characteristics

enables engineers to focus on the characteristics
strongly related to the most important requirements
of the customer.

Instructor: Eng. Tamer Haddad 42

Second Semester 2017/2018
 5.8 Quality-Based Competition
5.8.2 Quality Function Deployment Model
Construction Steps:
7) Comparison to competitors- an estimate of how
successful our design is with respect to each
customer requirements compared to competitors’
designs.

Instructor: Eng. Tamer Haddad 43

Second Semester 2017/2018
 5.8 Quality-Based Competition
5.8.2 Quality Function Deployment Model
Construction Steps:
8) The target values of the engineering characteristics
are set to meet customers’ expectations.

Instructor: Eng. Tamer Haddad 44

Second Semester 2017/2018
 5.8 Quality-Based Competition
5.8.2 Quality Function Deployment Model
Construction Steps:
9) The relationships among the engineering
characteristics of the product are recorded.

Instructor: Eng. Tamer Haddad 45

Second Semester 2017/2018
 5.8 Quality-Based Competition
5.8.2 Quality Function Deployment Model

Other Models:

Quality assurance is an approach based on the concept

that quality should be designed and built into the
product and process to prevent defects.

Quality control is based on a continuous effort to

monitor against deterioration and failures and to prevent
shipping poor quality products to the customer.

Instructor: Eng. Tamer Haddad 46

Second Semester 2017/2018
 5.9 Cost-Based Competition
5.9.2 Effect of Cost on Profit
• Since profit per unit of product is defined as the
difference between the selling price of a product and
the cost of that product, an organization can increase
its profits by either raising prices or reducing costs
(or both).

• Price vs. Demand and Sales.

• A safe way is to increase profit through reducing the

cost of products while keeping high-quality products
and processes.
Instructor: Eng. Tamer Haddad 47
Second Semester 2017/2018
 5.9 Cost-Based Competition
5.9.1 Effect of Cost on Profit
• To reduce costs and compete successfully in the
market, the effort should focus on maximizing the
value to the customer while minimizing waste (Shtub
et al., 2004).

• Focus on creating value for the customer is the basis

of Lean manufacturing (Lean production). In this
approach, the focus is on creating value for the
customer by eliminating waste.

Instructor: Eng. Tamer Haddad 48

Second Semester 2017/2018
 5.10 Flexibility-Based Competition
5.9.1 Effect of Cost on Profit
• The flexibility of the process, a product, or a service
is expressed in the ability to change the process,
product, or service quickly and at low cost.

• The flexibility is achieved through proper process

design that allows inexpensive and rapid changes.
Flexibility is also achieved by designing products
that enable quick changes to the product, without
harming quality or increasing cost.

Instructor: Eng. Tamer Haddad 49

Second Semester 2017/2018
Instructor: Eng. Tamer Haddad 50
Second Semester 2017/2018