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

8.4.2 Pipeline Planning across Several Independent Locations

Intended learning outcomes: Describe a typical production pipeline showing its production locations. Explain the master production scheduling process and the planning group for several locations that operate independently of one another.

Globalization of the markets has meant that firms produce at different locations around the world. There are different reasons for this: For example, trade barriers may force companies to establish facilities in countries with important markets (see Section 2.1.1). The buying up of foreign companies is an increasingly frequent phenomenon. Validation require­ments of the FDA encourage the centralization of certain production processes at a single location.

All these conditions result, however, in major disadvantages for efficient logistics: Intermediate products and active substances have to be moved from one location to another and from one country to another. Figure shows a practical example of a production structure called, in technical jargon, a production pipeline. See also [HüTr98].

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Fig.        A typical production pipeline.

The different process stages in this pipeline involve different volumes and process units. Some stages produce large volumes in dedicated single-purpose facilities. Others result in small volumes and take place in multipurpose facilities. Figure shows the same pipeline with the various production locations highlighted in different shades of gray.

This distributed production system can be regarded as a customer-supplier relationship among the individual production locations. In the example, the pipeline even links production sites in different countries. Each of these locations has its own planning process for its logistics systems, which makes it more difficult to schedule the entire pipeline efficiently, since each location aims to optimize different aspects when creating its long-term plan. Products that simply pass through the location (in the pipeline) are not taken into account in this optimization, with the result that, for pipeline products, large stocks build up in the intermediate stores, and long lead times are required.

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Fig.        A typical production pipeline showing its production locations.

This structure is not comparable with a company and its depart­ments, because, in this case, the “departments” are independent companies or profit centers within a group of companies. The principles of supply chain management apply here, particularly the following:

  • The people involved must regard one another as partners. This applies to the schedulers at the company that manufactures the active substances (the pipeline products) as a whole, and also to schedulers at the companies involved in producing the product. There is no point in any of the parties overplaying their negotiating position, since the entire pipeline is under the control of people. Mutual respect and consideration do not simply foster good relation­­ships among all parties involved; they also increase people’s willingness to attempt to understand specific problems. See also Section 2.3.3.[note 805]
  • Information systems must be networked, to exchange forecasts and other planning data. The results of the central coordinating pipeline planning process must be fed back to the companies involved in the pipeline. See Section 2.3.5.

Figure shows the process for master planning.

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Fig.        Master production scheduling process for several locations that operate independently of one another.

The central planning office sends the result of master planning, that is, the master production schedule (MPS) for the entire pipeline, to the individual companies involved, where it will be adjusted to suit local scheduling needs. The result of this process is then returned to the central pipeline planning department, and so on. The planning process is organized on a rolling basis, and the planning horizon may be as long as one or two years hence. Figure shows suggested scheduling groups.

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Fig.        Planning group for several production locations operating independently of one another.

The scheduling group comprises a (central) pipeline manager (PM) and representatives from the scheduling groups of all the plants involved (plant schedulers, PS). It is important to ensure that all the schedulers constantly exchange information with one another. It can also be useful to have an independent arbitrator. The presence of an arbitrator is a typical indicator of the weakness of every model of this kind, whenever the pipeline or network develops no self-understood culture of cooperation.

Course section 8.4: Subsections and their intended learning outcomes