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R.V. College of Engineering, (An Autonomous Institution under VTU, Accredited by NBA) Bangalore – 560059 A MINI PROJECT ON INFLUENCY OF LOGISTICS ON SUPPLY CHAIN SYSTEM IN AEROSPACE MANUFACTURING INDUSTRY
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Page 1: MINI PROJECT PPT

R.V. College of Engineering,(An Autonomous Institution under VTU, Accredited by NBA)

Bangalore – 560059

A MINI PROJECT ON

INFLUENCY OF LOGISTICS ON SUPPLY CHAINSYSTEM IN AEROSPACE MANUFACTURING

INDUSTRY

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MEMBERS OF PROJECT

BHANU PRATAP SINGH CHAUHAN (1RV07IM051)

AMITABH CHAUDHARY (1RV07IM051)

PIYUSH SINGH (1RV07IM053)

MAYANK PRASAD TIWARI (1RV06IM021)

GUIDED BY:

Mr. A.V.SURESH Mrs. A. RAMA

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LITERATURE SURVEY

The forces and the resulting dynamics of the aerospace industry during the 1980's and early 1990's forced the industry to look for solutions to its problems, by turning to academia and learning from other industries. In that regards, the academic focus on industry's supply chain and operations is relatively new, compared to other industries such as Retailing or Automotive. Therefore, the industry is 10-15 years behind the Automotive industry in terms of acquiring new operational methodologies such as supplier collaboration and lean manufacturing principles' .The research available on aerospace industry's practices, therefore, is fairly recent compared to research on the automotive industry. The research on role of operations and supply chains on business strategy, however, is a well researched topic. The idea of supply chain as being a core part of strategy was discussed by Porter (1985) where he suggested that competitive advantage depends on not only the firm's value chain but also how it fits in its overall value system. Porter (1996) proposed that pure operational excellence is not a strategy. He defined sustainable advantage as one coming from doing activities that are different from competition, or doing them in a way that is hard to replicate, and ensuring that these activities are designed to support a specific business that the firm has chosen to compete in. A firm should choose what business it would compete in, and therefore also choose what businesses it would not compete in, and then design its activities in a way (as mentioned above) so

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So that its unique set and design of activities gives it a sustainable advantage. On similar lines, Hammer (2004) proposed that a firm can build sustainable competitive advantage by excelling at operational activities, and doing them better than competition. Thus Porter focuses on choosing the right business and then designing a set of activities that is hard to copy (proposing that competitive value of individual activities cannot be separated from the whole), while Hammer focuses on performing these activities better than competition, to get a sustained advantage. On the subject of designing a set of activities to support a business strategy or an operational objective, Fisher (1997) proposed that the design of the supply chain (and the activities therein) should follow from the nature of customer demand for a company's products. Therefore, if the company has functional products with consistent demand (for example Wal-Mart in the grocery business), then the company should focus on serving the customers with an efficient supply chain to get most margins out of the business. On the other hand, if the products are innovative and have shorter lifecycle with unpredictable demand (for example Hewlett-Packard in laser printer business), then the company should focus on a responsive supply chain. On similar lines, Simchi-Levi (2000) explained the use of 'pull', 'push' and push-pull' strategies and that the correct choice of strategy follows from the nature of product and customer demand. This model is used in this thesis to analyze and understand the prevalence of a pull based production system in the highly cyclical aerospace industry. The foremost body of knowledge about the industry comes from the Lean Aerospace Initiative (LAI) at Massachusetts Institute of Technology (MIT). The subject of lean manufacturing was introduced to a wide audience by Womack et al. (1990) and Womack et al (1996) at MIT after their study of the Toyota Production System. However, the principles that are

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applicable to the Automotive industry are very relevant for the aerospace industry due to similarities. The principles of lean manufacturing emphasize the process of

reducing waste, with the goal of creating value for the organization.This thesis builds on these perspectives and studies Rolls-Royce as a case study in today's perspective of the aerospace industry. The understanding of current state of the aerospace industry and the operational and supply chain practices comes from various industry experts, white-papers written by consultants advising the industry, and reports from trade bodies such as the Aerospace Industries Association (AIA) and the US International Trade Commission, which measures the competitiveness

of the various segments of the industry (aircrafts, engines and equipment) in different geographies. The current and future trends in the industry are documented by journals, for example 'Aviation Week & Space Technology' and 'Insight', as well

as by other magazines, such as 'The Economist' and 'The Engineer'. Further, investment-oriented analysis is presented by financial institutions and credit rating

agencies such as Standard and Poor's. These analyses and trends are used tounderstand the industry and the position of Rolls-Royce within the industry. Finally,

the supply chain at Rolls-Royce has been studied in Rolls-Royce's internalimprovement initiatives, and one of its success stories has been documented in a video film "Supplier Operating Model and AE 3007 Engine Flowline. " This film is a

good source of seeing some of the Rolls-Royce's supply chain principles in practice, and has been used in this thesis to understand their progress in how far the

company has come in its planned journey towards lean manufacturing.

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Role of Supply Chain Operating Model in Rolls-Royce's Business Strategy

Rolls-Royce operates with an engineer-to-order business model, and its supply chain is geared to support that product manufacturing and delivery structure. Using Simchi-Levi's model9x of push versus pull based strategy9 9, Rolls-Royce uses a pull-based strategy since it operates in an uncertain demand environment in its orders products, and they each engine produced is one of a kind, with no mass

production of a the specific designs. This strategy ensures minimal investment of capital and reduces the capital at risk in raw material and work-in-process inventory,

which is also assisted through the use of JIT principles as well as through a reduction in need by shortening manufacturing lead times.

Engineered-to-order aircraft Engineered-to-order aircraft engines(rolls-roycee)engines(rolls-roycee)

Furniture (ethan allan)Furniture (ethan allan)

Books and CD’s(amazon.com)Books and CD’s(amazon.com) Groceries(wal-mart)Groceries(wal-mart)

Economies of scale

high

low high

Demand uncertainity

Matching Supply Chain Strategies with Products

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Rolls-Royce Civil Aerospace division performance history 1999-2003

Rolls-Royce Military Aerospace division performance history 1999-2003

20020033

20020022

20020011

20020000

19991999

Revenue Revenue in dollarsin dollars

25125166

24724777

25225200

25225255

20482048

Engine Engine deliveriesdeliveries

510510 505505 472472 555555 511511

employeeemployeess

49049000

51051000

67067000

72072000

79007900

20020033

20020022

20020011

20020000

19991999

RevenRevenue in $ ue in $ millionmillion

48448499

49349300

61761799

56756700

45794579

Engine Engine deliverdeliveriesies

746746 856856 13613622

10910911

10801080

EmploEmployeesyees

1981980000

2112110000

2392390000

2462460000

2570257000

InstallInstalled ed engine engine basebase

1041045050

99199100

92192122

83283222

74477447

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Supply Chain problems:

The symptoms that were indicators of supply chain problems were:1) Inventory stockpiling: Sub-assemblies were being built all across the facility, and therefore inventory was collecting in multiple locations. As a result, the employees werespending 40% of their time in locating the required parts for production, or in acquiring them from suppliers.2) Lack of any process flows: Different processes were done in different locations with no relation to their position in the sequence of manufacturing operations for an engine.3) Delayed deliveries to airlines and other end customers.4) Manufacturing was regularly behind its manufacturing schedule, thus increasing the need for costly material expediting.

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Supply Chain Structure in the Aerospace Industry:

ExternalSuppliers

InternalFunctions

ExternalDistributors

INFORMATION

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LogisticsLogistics The process of planning, implementing, and The process of planning, implementing, and

controlling the efficient, cost-effective flow and controlling the efficient, cost-effective flow and storage of goods, services, and related information, storage of goods, services, and related information, from point of origin to point of consumption, for the from point of origin to point of consumption, for the purpose of conforming to customer requirements.purpose of conforming to customer requirements.

Components of an Integrated Logistics SystemComponents of an Integrated Logistics System• External Supply:External Supply: links suppliers to operations links suppliers to operations

processprocess• Internal Operations:Internal Operations: manages in-process manages in-process

material flowmaterial flow• Physical Distribution:Physical Distribution: links operations process to links operations process to

customers customers

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DistributionDistribution Getting the right material to Getting the right material to

the right place at the right the right place at the right time in the right quantity:time in the right quantity:• Traffic Management: Traffic Management:

The selection, The selection, scheduling & control of scheduling & control of carriers (e.g.: trucks & carriers (e.g.: trucks & rail) for both incoming rail) for both incoming & outgoing materials & & outgoing materials & products products

• Distribution Management: Distribution Management: The packaging, storing The packaging, storing

& handling of products & handling of products in transit to the end-in transit to the end-user.user.

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Formulas for Measuring Supply-Chain PerformanceFormulas for Measuring Supply-Chain Performance

Inventory Turnover = Inventory Turnover = Cost of goods sold . Cost of goods sold . Average aggregate inventory Average aggregate inventory

valuevalue

Weeks of Supply = Weeks of Supply = Average aggregate inventory valueAverage aggregate inventory value

Cost of goods soldCost of goods sold

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Trends in Logistics ManagementTrends in Logistics Management

Increased awareness of Increased awareness of strategic benefits of integrated strategic benefits of integrated logistics managementlogistics management

Third-party logistics servicesThird-party logistics services Just-in-time logisticsJust-in-time logistics Environmental sensitivityEnvironmental sensitivity

NOW: Supply chains create tremendous amounts of waste NOW: Supply chains create tremendous amounts of waste material to protect goods in shipment and storage.material to protect goods in shipment and storage.

FUTURE: Distribution will use FUTURE: Distribution will use reverse logisticsreverse logistics, the recycling , the recycling or proper disposal of cardboard, packing material, strapping, or proper disposal of cardboard, packing material, strapping, shrink wrap, pallets, etc...shrink wrap, pallets, etc...

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SCM: the need to reduce variability or the SCM: the need to reduce variability or the impact of variability on the supply chainimpact of variability on the supply chain

Supply network variabilitySupply network variability• late deliveries: weather,equipment breakdownlate deliveries: weather,equipment breakdown• quality problemsquality problems

Manufacturing process variabilityManufacturing process variability• machine reliability and equipment failuremachine reliability and equipment failure• changeovers / setups / part expeditingchangeovers / setups / part expediting• design and quality problemsdesign and quality problems

Customer network variabilityCustomer network variability• cancellations and irregular orderscancellations and irregular orders• equipment failureequipment failure• schedulingscheduling

Carrying safety inventories are the most common approach to dealing with variability

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Supply chain partners can benefit by sharing information on Supply chain partners can benefit by sharing information on sales, demand forecasts, inventory levels & marketing sales, demand forecasts, inventory levels & marketing campaignscampaigns

Inaccurate or distorted information leads to the Inaccurate or distorted information leads to the Bullwhip Bullwhip EffectEffect

Information SharingInformation Sharing

Typical Information FlowTypical Information Flow

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The bullwhip effectThe bullwhip effect

Demand variability increases as you move up the supply chain Demand variability increases as you move up the supply chain from customers towards supplyfrom customers towards supply

EquipmentTier 1 Supplier Factory Distributor Retailer Customer

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Consequences of the bullwhip effectConsequences of the bullwhip effect

Inefficient production or excessive inventory.Inefficient production or excessive inventory.

Low utilization of the distribution channel.Low utilization of the distribution channel.

Necessity to have capacity far exceeding average demand.Necessity to have capacity far exceeding average demand.

High transportation costs.High transportation costs.

Poor customer service due to stockouts.Poor customer service due to stockouts.

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Causes of the bullwhip effectCauses of the bullwhip effect Order synchronizationOrder synchronization

• Multiple retailers who tend to order around the same time periodMultiple retailers who tend to order around the same time period• Manufacturers responding to an MRP system that place raw material orders at Manufacturers responding to an MRP system that place raw material orders at

the beginning of the month the beginning of the month Order batchingOrder batching

• In order to save on shipping or ordering costs, firms order a full pallet or full In order to save on shipping or ordering costs, firms order a full pallet or full truck load truck load

Trade promotions and forward buyingTrade promotions and forward buying• Supplier offers a discount on product ordered in a specific time periodSupplier offers a discount on product ordered in a specific time period• Supplier offers a quantity discountSupplier offers a quantity discount• A retailer orders a large quantity intending to take advantage of a discount and A retailer orders a large quantity intending to take advantage of a discount and

sells excess product to a second retailer (this strategy is called diversion) sells excess product to a second retailer (this strategy is called diversion) Reactive and over-reactive orderingReactive and over-reactive ordering

• A retailer who is not sure that demand is stable over time may act aggressively A retailer who is not sure that demand is stable over time may act aggressively when faced with periods of lower or higher than expected demand when faced with periods of lower or higher than expected demand

Shortage gamingShortage gaming• A retailer who wants to insure product from an under-capacitated supplier may A retailer who wants to insure product from an under-capacitated supplier may

over order expecting to only receive a portion of the ordered quantity over order expecting to only receive a portion of the ordered quantity

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Future ChallengesFuture Challenges

Classic downstream Supply Chain

Extraction Business

Material Refiner

Component Manufacturer

Producer

Wholesaler

Retailer

Consumer

Household Replenishment:Household Replenishment:• Fulfilling consumer demand at the point of use (the home).Fulfilling consumer demand at the point of use (the home).• Often called ‘the last mile’ problem.Often called ‘the last mile’ problem.

Freeze Point Delay (Postponement):Freeze Point Delay (Postponement):• Last minute customization to provide Last minute customization to provide

exactly what the consumer wants while exactly what the consumer wants while maintaining very small inventoriesmaintaining very small inventories

Extraction Business

Material Refiner

Component Manufacturer

Producer

Consumer

DisintermediationOf Supply Chain

with E-Commerce

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Supply Chain and Logistical Costs

Functional Activity % of salesAdministration 2.4Transportation :

Inbound 2.1Outbound 4.3 6.4Receiving and shipping 1.7Packaging 2.6Warehousing 3.7

Inventory carrying cost:Interest 2.2Taxes, insurance, obsolescence 1.6 3.8

Order processing 1.2Total 21.8%

Functional Activity % of sales

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Transportation and the Traveling Salesman Problem

The traveling salesman problem is a special network formulationsthat requires a heuristic solution for all but the smallest problems. The object of the TSP is to find a network cycle that minimizes thetotal distance required to visit all nodes once.

The nearest neighbor procedure (heuristic)1. Start with a node (location to be visited) at the beginning

of the tour (the depot node).2. Find the closest to the last node added to the tour.3. Go back to step 2 until all nodes have been added. 4. Connect the first and last nodes to complete the tour.

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Example: Use the following symmetric distance matrix to design a tour that minimizestotal distance traveled.

From To Node (in miles)Node 1 2 3 4 5 61 - 5.4 2.8 10.5 8.2 4.12 5.4 - 5.0 9.5 5.0 8.53 2.8 5.0 - 7.8 6.0 3.64 10.5 9.5 7.8 - 5.0 9.55 8.2 5.0 6.0 5.0 - 9.26 4.1 8.5 3.6 9.5 9.2 -

Example: Use the following symmetric distance matrix to design a tour that minimizes

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THANK YOUTHANK YOU