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

4.4.4b Features in Reference to the Production or Procurement Order: Blanket Order, Lot Size or Batch Size, Lot Traceability, Loops in the Order Structure

Intended learning outcomes: Present important features and possible values in reference to production or procurement order. Identify the features type of long-term order and blanket order. Explain the concepts of lot size, lot traceability, and loops in the order structure.

Continuation from previous subsection (4.4.4)

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

  • 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).

  • Lot size one, or batch size one, or single-item production, or single-item procurement, 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.
  • Production without lots or procurement without lots means that no specific quantity is linked with the order. Rather, after order opening, pro­duc­tion/procurement continues until an explicit order stop is given. Lotless production or lotless procurement are possible synonyms.

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