Supply-Demand Chain Analysis for the Business Continuity Planner
Manufacturing is a business sector that is not as well understood as other business models from a business continuity perspective. This article by Douglas Henderson, FSA, CBCP, should help business continuity practitioners to understand issues that are especially critical to the manufacturing environment. Doug is the author of a new planning tool for business continuity for manufacturing and distribution environments (described at the end of this article).
The production of a product by a manufacturer can be illustrated by examining a ‘Supply-Demand Chain’ or ‘Process Flow.’ The product is first manufactured, then fabricated, then assembled, checked, packed and finally shipped. The production of the final product is clearly dependent on all operational components continuously functioning. Of course there are inventories of raw materials and partially completed product that need to be taken into consideration as well.
Service industries are also a type of (less visible) Supply-Demand Chain with many interdependencies. Information/data of some type is collected, verified, analyzed (with some value added) and sold to a customer. The entire process is sometimes completely void of paper or other physical object. However, Supply-Demand Chain principles are most easily illustrated by examining a manufacturing business.
Normal Supply-Demand Chain Analysis
The business continuity planner can use a Supply-Demand Chain model to document the manufacturing-related requirements and inventory levels available during the entire product development process. The analysis can actually be made for each individual product manufactured by the business.
Manufacturing-related tasks are expressed in terms of the time required to complete the task. Inventory levels are also defined in terms of time – inventory time is equal to the time the next manufacturing-related task will take to process the inventory. For example, if the inventory level in Raw Materials is sufficient to produce ten units of product and Manufacturing can produce two units of product per hour, then there are five hours of Raw Materials inventory available.
The entire Supply-Demand Chain production tasks and inventory levels are defined as follows:
- Inventory/ Warehouse-Receiving – Sufficient quantities of raw materials available for I1 hours* of Manufacturing
- Manufacturing Time – M1 hours to manufacture the product
- Inventory/Work in Progress (WIP) before Fabrication – Sufficient quantities of manufactured materials available for I2 hours of Fabrication
- Fabrication Time – M2 hours to fabricate the product
- Inventory/Work in Progress (WIP) before Assembly – Sufficient quantities of fabricated materials available for I3 hours of Assembly
- Assembly Time – M3 hours to assemble the product
- Inventory/Work in Progress (WIP) before Test & Quality Control – Sufficient quantities of assembled materials available for I4 hours of Test & Quality Control
- Test & Quality Control Time – M4 hours to test and check the product
- Inventory/Warehousing-Shipping before Packing & Shipping – I5 hours of finished product waiting for shipping
- Packing & Shipping Time – M5 hours to pack and ship the finished product.
* Time can be expressed in terms of days, hours, minutes or any other measure of time.
From Raw Materials to Packing & Shipping, the entire product production time can be expressed as follows:
Production Time = Total Inventory Time + Total Manufacturing-Related Time
Total Inventory Time = I1 + I2 + I3 + I4 + I5
Total Manufacturing-Related Time = M1 + M2 + M3 + M4 + M5
Chart 1 – Normal Supply-Demand Chain
It is evident that there is a disruption in production whenever any one of the manufacturing-related tasks is disabled. Production also is disrupted when inventory is exhausted and when product is unavailable from the prior manufacturing-related task.
The Supply-Demand Chain manager is certainly interested in any disruption of the entire manufacturing process (idle equipment and time). However, the business continuity planner is most interested in having finished product to sell. For example, under the Normal Supply-Demand Chain model when the M5 task is disabled finished product cannot be shipped. Also when the M4 task is disabled and the I5 inventory levels are exhausted, new finished product will be unavailable for the M5 packing and shipping task. Ignoring the fact that, under each of these examples, the product can probably still be sold for a brief period of time.
An analysis can be extended all the way up to Raw Materials. If the Supplier of Raw Materials is unable to ship* for a period of time greater than I1 hours, then there will be a disruption of the Manufacturing task.
* A transportation disruption would have the same consequences.
Accelerated Supply-Demand Chain Analysis
The business continuity planner must consider the impact of eliminating the inventory component. Note that ‘inventory time’ is essentially downtime where raw materials or partially completed product is waiting for the next manufacturing-related task. Basically production is now continuously processed from one manufacturing-related task to the next manufacturing-related task (theoretically this process is conducted instantaneously without any inventory time component). This is referred to as the Accelerated Supply-Demand Chain model.
From Raw Materials to Packing & Shipping, the entire product production time can be expressed as follows:
Production Time = Total Inventory Time + Total Manufacturing-Related Time
Total Inventory Time = I1 + I2 + I3 + I4 + I5 = 0
Total Manufacturing-Related Time = M1 + M2 + M3 + M4 + M5
Production Time = Total Inventory Time + Total Manufacturing-Related Time
Production Time = 0 + Total Manufacturing-Related Time
Production Time = Total Manufacturing-Related Time
Chart 2 illustrates this process graphically.
Chart 2 – Accelerated Supply-Demand Chain
This model actually illustrates Just-In-Time (JIT) and Lean Manufacturing concepts. From the perspective of the business continuity planner, it illustrates that once any manufacturing-related task is disabled there is an immediate disruption of production. This disruption can be tracked down the Supply-Demand Chain. For example, if Fabrication (M2) is disabled for ‘X hours’ then the shipping of finished product will continue for M3 + M4 + M5 hours and then be discontinued for X hours.
The business continuity planner should also note that this accelerated model can be utilized to restore production faster after a disruption. The Accelerated Supply-Demand Chain ignores inventory levels which can be replenished over time at the convenience of the manufacturer.
An Example
The analysis can best be illustrated by an example. Let’s assume the following manufacturing-related task times and inventory levels for the product under examination:
- Inventory/Warehouse-Receiving – Sufficient quantities of raw materials available for three days of Manufacturing (I1)
- Manufacturing Time – Four hours to manufacture the product (M1)
- Inventory/Work in Progress (WIP) before Fabrication – Sufficient quantities of manufactured materials available for two hours of Fabrication (I2)
- Fabrication Time – Four hours to fabricate the product (M2)
- Inventory/Work in Progress (WIP) before Assembly – Sufficient quantities of fabricated materials available for one hour of Assembly (I3)
- Assembly Time – One hour to assemble the product (M3)
- Inventory/Work in Progress (WIP) before Test & Quality Control – Sufficient quantities of assembled materials available for one hour of Test & Quality Control (I4)
- Test & Quality Control Time – One hour to test and check the product (M4)
- Inventory/Warehouse-Shipping before Packing & Shipping – Two days of finished product waiting to be packed and shipped (I5)
- Packing & Shipping Time – One hour to pack and ship the finished product (M5)
Under the Normal Supply-Demand Chain model, the entire production process takes seven days (five and one-half days of ‘inventory time’ and one and one-half days of ‘manufacturing-related time’).
Chart 3 illustrates this process graphically.
Chart 3 - Sample Product Supplly-Demand Chain
This example can be used to analyze when a disruption in the Supply-Demand Chain will result in unavailable finished product for shipment to customers. For simplicity, assume that this manufacturer works one eight-hour shift per day seven days per week. Under the following scenarios, consider these questions, answers and explanations:
Question: How long will finished product be unavailable for shipping to customers if raw materials cannot be received for five days?
Answer: There should be no disruption in available finished product.
Explanation: After five days, there will still be two days of finished product in M5 (Packing & Shipping) and I5 (Warehouse-Shipping). Under the Accelerated Supply-Demand Chain model, new finished product can be shipped after one and one-half days of manufacturing-related time.
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Question: How long will finished product be unavailable for shipping to customers if raw materials cannot be received for eight days?
Answer: Finished product will be unavailable for shipping to customers for two and one-half days.
Explanation: After seven days all product under production will be exhausted. There is one day remaining waiting for raw materials to arrive plus one and one-half days of manufacturing-related time before new finished product can be shipped.
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Question: How long will finished product be unavailable for shipping to customers if Assembly is disabled for two days*?
Answer: There should be no disruption in available finished product.
Explanation: After two days, there will still be three hours of finished product in M5 (Packing & Shipping) and I5 (Warehouse-Shipping). Under the Accelerated Supply-Demand Chain model, new finished product can be shipped after two hours of post-Assembly manufacturing-related time.
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Question: How long will finished product be unavailable for shipping to customers if Assembly is disabled for three days*?
Answer: Finished product will be unavailable for shipping to customers for seven hours.
Explanation: After two days and three hours (M5 + I5 + M4 + I4) all finished product under production will be exhausted. There are five hours remaining before Assembly begins to produce product plus two hours of post-Assembly manufacturing-related time before new finished product can be shipped.
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* Assume that Assembly can immediately forward product at the end of the disablement period.
In Summary
There are a number of simplifications with these models and manufacturing operations are also dependent on support operations provided by Human Resources, Facilities, Information Technology, etc. that the business continuity planner must also examine. However, the Supply-Demand Chain models are useful tools for the business continuity planner to analyze disruptions in shipping (selling) finished product.
- Douglas M. Henderson, FSA, CBCP
President
Disaster Management, Inc.
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Business Continuity can be a challenge in any environment – and the complexities of manufacturing and distribution operations can be even more challenging.
The new BUSINESS CONTINUITY PROGRAM FOR MANUFACTURING AND DISTRIBUTION ON CD-ROM has some similarities to business continuity programs for other business environments – but many differences specific to manufacturing and distribution.
- Have Critical Revenue-Generating Operations been Thoroughly Analyzed?
- Is Your Plan Designed Specifically for a Manufacturing or Distribution Business?
- Is Your Plan Limited to Information Technology Planning?
- Do All Departments have Adequate Plans in Place?
If the answer to any of these questions is “no” or “unsure,” then this planning template can help!
Tags: distribution, manufacturing, Points of Distribution, process flow, supply chain
