Reality of Risk

Building Risk



Industrial Engineer – Volume 39 Number 2

Modern supply chain are susceptible to such disruption because supply chain are not designed with risk in mind and modern planning and scheduling are not robust enough to operate under significant condition different from those for which they are planned.

Although Material Requirement Planning (MRP), Manufacturing Resource Planning (MRP II) and Enterprise Resource Planning (ERP) are the modern process, these process do not explicitly consider risk and have ignored key facts regarding the system they try to control. There are two basic problems with these system: first, lot sizing is done without consideration of capacity and planning lead-times are assumed to be attributes of the part. The result are the lot size that increase the inventory and reduce responsiveness. Second, the planning lead-time does not depend on current work-in-process levels and caused being late (poor customer service). Because of the problems, most companies do not run their plants using the output ERP systems.

There are many software and application that uses deterministic simulation. However, there are 3 factors that prevent the approach of using deterministic simulation. First, the supply chain and plant have inherent randomness that do not allow for the complete specification of a time for each process center with a given labor component. Second, the detailed schedule system must re-run often because the short term solution. Using random noises and feeding back the random noises increase the variability in the system being controlled do , many companies turned off their advanced system and scheduling after wasting a great deal of money. Third, it is impossible to find an optimal schedule so heuristic is must be applied. For this case there is an application named APO. This approach is using what-if analysis with deterministic simulation and optimization of a set penalties associated with on time delivery, setups, and wasted capacity. This combined approach may be tedious and less intuitive also complex. It is not useful when there are hundreds of machines to consider. Nevertheless, a combination of existing application with new technology can help circumscribe risk without the tediousness ot the complexity of modern APO systems.

To synchronize transformation and demand, buffers required. There are extra time and extra capacity. The transformation can satisfy demand with making demand wait for the product or maintaining extra capacity in order to provide timely production upon demand. This problem makes the amount of excess inventory. So there is a way to create a new and more effective way to manage manufacturing supply chains by reduce the number of values that must be monitored as well as control variables in the problem. Using Dynamic Risk-Based Planning and Scheduling (DRPS), the user only need monitor projected inventory and projected service level and then control a few key parameters (lead-times, lot sizes/product quantities, installed capacity, makeup capacity, WIP level, virtual queue). So the DRPS can automatically respond to random changes in demand in supply without the need to reschedule. It makes DRPS is more effective than APO.

The task can be simplified by using the existing MRP system and generalized pull system known as Constant Work-in-process (CONWIP). CONWIP is a method for achieving pull production in a wide range of production environments and the key to low management. The result is predictable cycle time, smoother flow, and higher throughput that would be seen in and equivalent push so people can accurately predict when each job will compete. CONWIP mechanism also isolates the variability inherent in demand from disturbing the flow. So the more IT is not the solution to the problem without completely rethinking the problem.




“Realities of Risk” is an article made by Mark L. Spearman. In this article, he told us about Supply Chain Planning system that used in warehousing has been change from the last century. According to Oxford dictionary, system is a set of connected things or parts forming a complex whole, in particular. And logistics is the activity of organizing the movement, equipment, and accommodation of troops.

Although some people claim that one system is the most effective system the production at factory, but not all factory suit for some of that system. In this article shows us some of system since last century until now, and what kind of factory that suit with those system? Then why is one system is no longer effective as time goes by? What is the improvement of the new one?

In this article, Spearman said that last century supply chain planning used MRP, MRP II, and ERP to help factory to plan a schedule for production. This system is not effective because of MRP even though it gives factory about material planning but it has no consideration of capacity. So the factory will hold more or less amount of inventory than the amount that it needs. This will be related to company’s cost. Then the ERP without help from information technology will be less effective because the integration between departments is still less connected when compare with the ERP with information technology.

After that system, supply chain planning getting updated. Sophiscated advanced planning and optimization (APO) was added to the system. This new additional will help the company to plan a detailed schedule for a single instance that will shows the company which items that needed the most and which items that needed the least, how much cost that an item need, should the company need more items, etc. But, this APO additional is suitable for the factory that has a few of variable. Because, if the factory has a lot of variable then it will makes a lot of detailed schedules and this will makes the data less accurate.

After APO, supply chain planning added another sophisticated method which is dynamic risk-based planning and scheduling (DRPS). This new additional will give the factory some deterministic simulation that help factory determine what variable that will give more impact than other and how much exactly the amount that the variable needed. This will help the factory a lot. Because this deterministic simulation has all the answer that the company choose. So the people in the factory will have the answer and determine which solution is the best for the company. Because it using deterministic simulation, some of the problem even if it has change in some way the deterministic will still be the best deterministic and it automatically  respond to any random changes in demand or in supply. So this system is the more effective than APO system.

While the company has known the parameters, the system can be implemented. The task can be simplified by using the existing MRP system and a generalized pull system known as constant work-in process (CONWIP). This CONWIP protocol is a method for achieving pull production in a wide range of production environments and is key to flow management. If the system is designed well, these conditions will hold. MRP is used in the usual way but instead of starting jobs according to MRP’s planned order release list, the CONWIP protocol will pulls them. We can accurately predict when each job will complete.


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