Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

4.4.4 Seven Features in Reference to the Production or Procurement Order

Intended learning outcomes: Present important features and possible values in reference to production or procurement order. Differentiate between order release according to demand, prediction, and consumption. Differentiate between production (or procurement) without, with infrequent, and with frequent order repetition. Identify the features flexibility of the order due date and type of long-term order. Explain the concepts of lot size, lot traceability, and loops in the order structure.


Figure 4.4.4.1 shows the third group of features.

Fig. 4.4.4.1        Important features and possible values in reference to production or procurement order.

The reason for order release is the origin of the demand. The type of order indicates the origin of demand that resulted in the order.
  • Conventionally, the following values are distinguished (compare to Figure 4.2.3.1): Order release according to demand and customer production orderor customer procurement order: A customer has placed an order. It may be a classic (single) order, for a car, for example, or it may be a blanket order, such as for electronic components. In the latter case, customer production orders can follow at different points in time, released according to the delivery agreements. This is also called demand-controlled materials management, using pull logistics.
  • Order release according to prediction and forecast order: Future demand has been estimated, such as demand for a machine tool. Customer orders for the machine tool have not yet been received. To meet forecasted demand, a production or procurement order is released. This is also called forecast-controlled materials management using push logistics.
  • Order release according to consumption, and (stock) replenishment order: A customer places an order for a product in stock, for example, in the retail trade. In response to the demand, stock must be reordered. Actually, this is a response to forecasting future need in the quantity that is reordered. This is also called consumption-controlled materials management using pull logistics.

Compare these definitions to Figure 4.2.3.1. By the way: The trigger for the release of orders can be different for end products, semifinished goods, and raw materials. It is dependent on the (customer) order penetration point (OPP).

The frequency of order repetition tells us how often within a certain time period a production or procurement order for the same product will be made. The time period chosen should be sufficiently long.
  • Production without order repetition or procurement without order repetition means that an order for the same physical product will practically never be placed again.
  • Production with infrequent order repetition or procurement with infrequent order repetition means that, with a certain probability, an order for the same physical product will be placed again.
  • Production with frequent order repetition or procurement with frequent order repetition means that orders for the same physical product will be very frequent.

Note: The adjective physical is used here to underline that this feature refers to the product level, and not to the product family level. Therefore, if an order produces a physically different product of the same family compared to another order, this is not considered to be production with order repetition.

The flexibility of the order due date indicates whether customers (internal or external) are flexible when stipulating the delivery due date.

The flexibility of the order due date is of great importance to methods of planning & control, particularly with regard to the target area of delivery. With regard to the target area of cost, it is connected to the (quantitatively) flexible capacity of workforce and production infrastructure, on-hand balance, and in-process inventory.

The feature type of long-term order describes the manner in which long-term planning is done in the supply chain.

A blanket order, for example, is a long-term agreement for a great number of deliveries.

A minimum blanket order quantity is — for a blanket order — a long-term minimum volume of business for a particular period of time.

Long-term orders are in the best interests of both parties. The customer profits from more reasonable pricing and from a higher fill rate from the supplier. The supplier in turn can depend on a minimum blanket order quantity and gains the advantage of increased planning capability.

We distinguish the following values, which correspond generally to the values of the features frequency of customer demand and product variety concept in Figure 4.4.2.1:

  • Blanket orders for goods are long-term binding commitments in the supply chain for products and their components. Assured sales are necessary and are guaranteed by continuous customer demand. If the minimum blanket order quantity is zero, then demand is only a forecast. If the forecast is relatively reliable, pro­duction planning for both partners in the supply chain will be better than without the forecast. For example, if customer demand is discontinuous, forecasts will be used for long-term planning.
  • Blanket orders for capacity are long-term binding agreements on reserving capacity. This may be in reference to a product family, for example, for which at least regular customer demand is guaranteed and which is produced in the main according to the same production process. The products are ordered short term, and they are to be produced using the reserved capacity within the delivery lead time. Again, if the minimal order quantity is zero, the same applies as described above.
  • “None” means that, in the supply chain, neither blanket orders nor forecasts are made. This is appropriate when actual customer demand is nonrepetitive.
Lot size or batch size is the order quantity of an ordered item (and vice versa).
  • Single-item production, or single-item procurement, or lot size one, or batch size one means that only one unit of the product is produced or procured for an order.
  • Small batch production or small batch procurement indicates that for an order only a few units of the product will be produced or procured.
  • Large batch production or large batch procurement means that a high quantity of units of the product will be produced or procured for one order.
  • Lotless production or lotless procurement means that no specific quantity is linked with the order. Rather, after order opening, pro­duc­tion/procurement continues until an explicit order stop is given.

Note: There is no correlation between the values in nearby columns of the feature batch size and of the feature frequency of order repeti­tion. For example, single-item production with frequent order repetition is quite common (for example, in machine tool production). Conversely, there can be production (without order repetition) of exactly one batch for the entire product life cycle[note 409] (such as when an active substance in the chemical industry, for cost reasons, is produced only once in the product life cycle, or in the case of special components that are very difficult to procure).

Lot traceability is information on the production and procurement of a product, in particular about the components used in the product.

Lot traceability is often required by law or can be important with regard to liability and problems associated with recalling a product. It generally asks for records about every production or procurement lot, batch, or charge:

  • charge, according to [APIC16], is the initial loading of ingredients or raw materials into a processor, such as a reactor, to begin the manufacturing process. It has become a synonym for a number or quantity of goods produced or procured together that, for the purposes of the lot traceability, are identical.
  • Position in lot refers to the successive numbering of the individual items in a lot.

The lot traceability requirement makes planning & control considerably more complicated. Nevertheless, lot traceability plays a particularly important role in the process industry. See Chapter 8.

Loops in the order structure is a situation in resource planning, where business objects have to be considered an indefinite number of times.
  • product structure with loops means a situation where a product is its own component — either directly or via intermediate products. It plays an important role again in the process industry, where production yields important quantities of by-products that are reused, such as scrap chocolate or energy.
  • An undirected network of operations means a situation where sequences of operations within the network may be repeated. It is found in the precision industry, where individual operations are repeated until the required degree of quality is reached. In addition, it plays an important role in the process industry, where a mixing operation may be repeated as often as is necessary to ensure the desired level of homogeneity.
  • product structure without loops, as well as a directed network of operations, are free of the above-mentioned effects.

Planning of loops in the order structure is relatively complicated. See Sections 8.1.3, 8.3.3, and 13.4.4.



Course section 4.4: Subsections and their intended learning outcomes

  • 4.4 Characteristic Features Relevant to Planning & Control in Supply Chains

    Intended learning outcomes: Produce an overview on principle and validity of characteristics in planning & control. Explain six features in reference to customer, and item or product or product family, five features in reference to logistics and production resources, as well as seven features in reference to the production or procurement order. Describe important relationships between characteristic features and features of transcorporate logistics in supply chains.

  • 4.4.1 Principle and Validity of Characteristics in Planning & Control

    Intended learning outcomes: Describe the characteristic in planning & control in a supply chain. Explain the use of the results of the analysis.

  • 4.4.2 Six Features in Reference to Customer, and Item or Product or Product Family

    Intended learning outcomes: Present important features and possible values referring to the user and the product or product family. Differentiate between a convergent product structure and a divergent product structure, between continuous demand and discontinuous demand. Explain the product variety concept. Describe unit cost and transportability of an item. Disclose the T analysis within the VAT analysis and its relation to the product variety concept.

  • 4.4.3 Five Features in Reference to Logistics and Production Resources

    Intended learning outcomes: Present important features and their possible values in reference to logistics and production resources. Differentiate between flexible capability of capacity and quantitatively flexible capacity. Explain the production environment: make-to-stock, assemble-to-order, make-to-order, and engineer-to-order. Describe site production, job shop production, as well as single-item-oriented, high-volume and continuous line production.

  • 4.4.4 Seven Features in Reference to the Production or Procurement Order

    Intended learning outcomes: Present important features and possible values in reference to production or procurement order. Differentiate between order release according to demand, prediction, and consumption. Differentiate between production (or procurement) without, with infrequent, and with frequent order repetition. Identify the features flexibility of the order due date and type of long-term order. Explain the concepts of lot size, lot traceability, and loops in the order structure.

  • 4.4.5 Important Relationships between Characteristic Features

    Intended learning outcomes: Identify links among facility layout, orientation of product structure, and (order) batch size. Disclose Links among the features product variety concept, production environment, and frequency of order repetition. Explain why the features frequency of customer demand and frequency of order repetition do not necessarily need to correspond.

  • 4.4.6 Features of Transcorporate Logistics in Supply Chains

    Intended learning outcomes: Present important features, possible values, and increasing complexity of supply chain collaboration, of supply chain coordination, and of the configuration of the supply chain.

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