BUSINESS PROCESS MODELING OF INFORMATION AND MATERIAL FLOW IN SUPPLY

CHAIN NETWORK

Abstract

In today’s global market, managing the entire supply chain becomes a key factor for the successful business. World-

class organizations now realize that non-integrated manufacturing processes, non-integrated distribution processes and

poor relationships with suppliers and customers are inadequate for their success. They realize the impact of an

organization’s plan on the areas of the supply chain. The impact of an organization’s plan on the whole supply chain is

Unpredictable before the execution.

The goal of supply chain network is to integrate suppliers, manufacturers, warehouses and stores efficiently so that

merchandise is produced and distributed in the right quantities at the right location and at the right times. In a supply

chain system, an individual member exchanges data with other members to synchronize their business operation,

which is a complex process. The problem faced by traditional supply chain is lack of accurate and timely information

flow across various stages, which leads to accumulation of inventory resulting in reduced efficiency and effectiveness.

Simulation permits the evaluation of operating performance prior to the execution of a plan. In the practical

application of this concept, the development of a simulation model for the supply chain management has become a

necessity.

The computer industry is highly capital intensive and is characterized by high customer expectations, short product life

cycles, globally distributed logistics, and considerable supply chain complexities. Generally firms compete on cost,

quality, and speed.The primary target of each of the organization is to maximize productivity and enhance growth

opportunities in the firm by reducing inventory, increasing fill rate and improving customer satisfaction.

Keeping the existing problem in mind, my paper substantiates the perspective of viewing the information flow in

supply chain network of a business process and present a model or continuous business growth, defining the process

and the sub process and measure to asses the effectiveness of the process for continuous refinement.

In my approach, I carried out a research to understand the situation prevalent in today’s business environment with

emphasis on topics like supply chain management, business process modeling, product development process, and

simulation and have there by deliberated on the application of the Model and Measure through a case study.
Case Study :

Modeling of the Information and Material Flow in a Supply

Chain :

While there is no doubt about the importance of informing in the supply chain and about the fact that
information technology (especially various Internet applications) can greatly reduce the costs, strategic
planning of this process and utilization of information is crucial. Information should be readily available to
all companies in the supply chain and the business processes should be structured in a way to make full use
of this information. While it should not be claimed that Internet alone reduces certain costs, strategic
utilization of the information is of the utmost importance and business process modeling and renovation.
But the effective utilization of information is useless unless there is a corresponding material flow. In a
supply chain there are three flows; materials, information and financial flows. The material flow is the
actual flow a product, raw material, component etc., through the system. This flow is the backbone of the
supply chain as information flow is based on this flow and financial flow is the result of this flow. Material
flow also needs to be optimized and for this Business process modeling can be used to actually track the
flow of materials.

Technological changes and organizational improvements are essential for effective integration of
supply chains .Business process modeling can be used to analyze the existing processes and help in
renovation and integration of those processes, with a special emphasis on an inter-organizational level.
Sharing and strategic utilization of information in a supply chain can radically improve execution of vital
business processes and help integrate processes indifferent companies resulting in shorter cycle times, lower
costs and inventory levels and better quality for the final customer. Business process modeling is a
prerequisite for business process management and renovation.

According to Global Supply Chain Forum (GSCF), Supply Chain Management is ‘‘the integration
of key business processes from end user through original suppliers that provide products, services, and
information that add value for customer and other stakeholders’’

Supply Chain Management is effective if there is a proactive relationship between a buyer and
supplier and the integration is across the whole supply chain, not just first-tier supplier. There are several
important problems in Supply Chain Management that need to be resolved for efficient operation. Most of
those problems stem either from uncertainties or inability to coordinate several activities and partners. One
of the most common problems in supply chains is the so-called bullwhip effect. Even small fluctuations in
the demand or inventory levels of the final company in the chain are propagated and enlarged throughout
the chain. Because each company in the chain has incomplete information about the needs of others, it has
to respond with the un- proportional increase in inventory levels and consequently even larger fluctuation in
its demand to others down the chain. Another problem is that the companies often tend to optimize their
own performance, disregarding the benefits of a supply chain as a whole (local instead of global
optimization).Additionally, human factors should also be studied: decision-makers at various points in the
supply chain are usually not making perfect decisions (due to the lack of information or their personal
hindrances). Those two problems are also interconnected as employee reward systems often focus simply
on growing sales or on gross margins.

E-business can be defined as the term covering both e-commerce (buying and selling online) and the
restructuring of business processes to make the best use of digital technologies. Internet and e-business
offer many possibilities for effective information sharing that enable seamless flow of transactions in the
supply chain. They can also facilitate relationships by their ability to transfer information. Newly developed
relationships can drastically change the underlying business processes and different new approaches are
emerging, such as vendor managed inventory, computerized point-of-sale systems, material requirements
planning, Manufacturing Resource Planning. The efficiency of supply chains can generally be improved by
reducing the number of manufacturing stages, reducing lead-times, working interactively rather than
independently between stages, and speeding up the information flow. It was shown that electronic data
interchange could reduce swings in inventory and safety stock.

The following details the various businesses processes and identifies the information and material
flow that occur at the Lenovo assembly plant in Pondicherry.

The main business functions are divided into six different departments.
• Demand Planning
• Supply planning
• Procurement
• Warehouse and Logistics
• Production
• Customer Service Order
 Business Functions

Demand Planning

Supply Planning

Procurement

Warehouse

Production

Customer Service
Fullfilement
Order
1 Demand Planning and Supply Planning
The demand planning department is responsible for generating the forecasted demand. This
demand is generated for a fixed time horizon and thus occurs every cycle. This forecasted demand
is in terms of Machines to Make (MTM) i.e. quantity requirements of each product line.
The supply planning department is involved in calculating the requirements needed to satisfy the
MTM requirements generated by demand planning. The MRP package is used to convert the MTM
requirements into individual part component requirements.
Both these business processes involve only information flow.
 Demand and Supply Planning

Data From Sales

Past Data

Input To M.R.P

Machine To Make
Requirements
(MTM)

Convert MTM to
BOM
Requirements

• Data from Sales- Sales from the previous demand horizons are used as inputs for the
forecasted demand.
• Past Data- Seasonal variations and past data are also use as inputs for the forecasted
demand.
 • Inputs to M.R.P- The data is collected and quantified by inputting it into an MRP software
(i2 Package).
• Machine To Make Requirements (MTM)- The output of the MRP system is the MTM
quantities required.
• MTM to BOM Requirements- Using the bill of materials the MTM quantities are
converted into individual part quantities.

5.4.2 Procurement
This department is responsible for the procurement of all the input materials and
components that are required to satisfy the demand. Here the flow is primarily information flow
with material flow occurring during the shipping and subsequent stages.
Procurement Cycle for a component

Determine Order
Quantity

False
Supplier
Supplier Search
Commitment

True

Purchase Order
Release By Buyer
For RAM

False

Approve PO

True

Softcopy to
Supplier

Shipment

Forwarder Pick-up

Customs

Pondicherry Plant
 • Determine order quantity of component- The procurement department identifies the
order quantity based on the BOM requirements.
• Supplier Commitment- The order quantity is communicated to the suppliers who then
have to commit whether they can supply that quantity by the required time.
• Supplier Search- If the primary suppliers cannot meet the requirements secondary
suppliers are sought.
• Purchase Order released by buyer- A buyer in the procurement department must first
create a purchase order containing all the required information for the purchase. This PO
must then be approved by the manager before it can be fulfilled.
• Approve PO- If the manager approves of the PO then it gets finalized and can be fulfilled.
• Softcopy to Supplier- Once the PO is approved the softcopy is sent to the supplier as a
formal requisition for the purchase.
• Shipment- After the supplier receives the PO, the required materials are then shipped. This
is a material flow. Both air and sea are used for transportation.
• Forwarder Pick Up- Depending on the terms of the contract either the supplier or buyer
engage a forwarder to transport the materials. This is based on different INCO terms. The
forwarder acts as a 3PL provider.
• Customs- The materials reach Chennai Port Customs and have to be cleared before they
can be released into the country.
• Pondicherry Plant- Once the materials clear customs they are transported to the
Pondicherry assembly plant.

5.4.3 Warehouse
The warehouse serves as a storage location for the input materials that are required for the
production process. The incoming materials are inspected for quality and then tagged and entered
into the system. The materials are stored until they are required on the shop floor. The system
keeps track of incoming materials thus maintaining inventory levels.
 Warehouse Model

Receiving
Component

Release
Component into
Storage

Inspect
Component

Calculate the
Current Inventory
of Component

• Receiving Component- The materials after clearing customs are then transported to the
assembly plant. These incoming materials need to be tagged with unique ID for the ERP
system to identify.
• Release Component into Storage- Once tagged the materials are entered into the system
and thus released into storage. This is part of both information and material flow.
• Inspection- Incoming materials are inspected for quality and defective components are
identified.
• Calculate Current Inventory- The ERP system calculates the on hand inventory of each
component and matches it with the requirements of supply planning.
5.4.4 Production
This consists of mainly the physical activities that are required in transforming the input
materials into finished goods. The components are assembled according to a standard set of
procedures. The plant operates a single assembly line. The production is broken down into the
following parts.
 Production Cycle

Production Plan SMOPS

Material Inward
Pass SMOPS
Note Issue

True

Order Update in
F.V.T
the ProM System

Kitting And
Pass F.V.T
Assembly

True

Disk Write Hi-POT

Pass Disk
Pass Hi-POT
Write

True

AVT

Packing

Pass AVT
False
• Production Plan- The production plan is generated on a daily basis. Every morning the
production plan for the day is generated. The production plan defines what quantities of
what products are going to be produced on that day.
• Material Inward Note (MIN) Issue- Depending on which product line and what
quantities are going to be produced the MIN specifies the quantities of the input
components required and that need to be brought from the warehouse.
• Order Update in ProM- The MRP system runs on an i2 package while the ERP
system runs on an SAP package. Shop floor activities however are managed by a
software package called ProMake. Thus the production plan for that day needs to be
inputted into ProM.
• Kitting and Assembly- This is the actual assembly process. It follows the following
steps.
 Kitting And Assembly

Trolley Brings Install Optical

Shell Drive

Open Sides of
Cabinet Install SATA and
Speaker

Insert Motherboard
into Shell
Wire Managers

Insert Processor
into the
Motherboard
Screw the Other
Side Cover of
Cabinet

Install RAM into

Motherboard

Insert Hard Disk

Connect Internal
Power Supplies

Screw the
Motherboard into
Cabinet
 o Trolley Brings Shell- The assembly process begins with an empty shell into which the
components are assembled. A trolley brings the required number of shells from the
warehouse to the start point of the assembly line.
o Open Cabinet Sides- The sides of the Shell/Cabinet are removed. The open shell is
passed onto the next stage of the assembly process while the sides are stickered and
sent to the end of the assembly process.
o Insert Motherboard into Shell- The motherboard is unpacked and inserted into the
shell.
o Insert Processor into Motherboard- The appropriate processor is inserted onto the
motherboard.
o Insert RAM onto Motherboard- The RAM module is attached to the motherboard.
o Insert Hard Disk- The hard disk is removed from the casing and then inserted into the
shell.
o Connect Internal Power Supplies- The power supplies for the motherboard and the
hard disk are connected with the power terminal that is already installed in the shell.
o Screw Motherboard onto Shell- The motherboard is then screwed onto the shell.
o Insert Optical Drive- The optical or disk drive is installed into the shell.
o Insert SATA and Speaker cables- The SATA (Serial Advanced Technology
Attachment) cables are attached to the motherboard and the optical drives. The inbuilt
BIOS speakers are installed.
o Wire Managers- Wire managers are used to organize the wires into small bundles.
o Screw in Cabinet Sides- The sides of the cabinets are screwed shut and the computer
finishes the physical assembly process.

• Disk Write- The BIOS files are backed up here. The Cabinet is first scanned to identify the
unique ID associated with the computer. A floppy drive is inserted and the back up is
performed.
• AVT- AVT or Advance verification and testing is used to test if the BIOS is fully
functional.
• SMOPS- SMOPS or Systems monitored operations is the next stage in the assembly
process. The operating software is installed on the machine. Depending on the ID either
DOS, XP or Vista are installed.
• FVT- FVT or Final verification and testing is the final visual inspection. The computer is
checked for any scratches or dents on the surface.
• HIPOT- Here the cabinet is checked for insulation. The cabinet is connected to ammeter
and the computer is switched on. If a current greater than 23 kVa is detected the piece is
rejected.
• Packaging- The packaging is the final stage in the assembly process. It follows the
following processes:
Packing Cycle

Bring Cabinet to
Packing Station

Pack the CPU with

Open Display
Display

Insert Plastic
Cover

Combine
Open Keyboard
Keyboard And
and Mouse
Mouse

Accessories And
Scaned

Thermocol
Package

Insert into box

Sealed and
Wrapped

Loaded on trolley
and taken to FG
Warehouse
 o Cabinet to Packing Station- After the HIPOT test the cabinet is brought to the
packing station to be combined with necessary accessories and packaged.
o Open Display- The shell is unloaded from the trolley near the packing station.
o Pack Display- The appropriate display for that computer configuration is combined
with the shell.
o Insert Plastic Cover- The shell and display are wrapped in a plastic cover and moved
to the next station.
o Keyboard and Mouse- The keyboard and mouse are matched with the shell.
o Accessories and Scanned- Various accessories like the user guide, warranty card,
installation cds etc., are added.
o Thermocol Package- The entire system is now inserted into the thermocol package.
o Insert into Box- The final system is loaded into a cardboard box.
o Sealed and Wrapped- The Box is sealed and wrapped and is ready for shipping.
o Trolley to Finished Goods Warehouse- The sealed box is then moved to the FG
warehouse were it is stored till it is required to fulfill a customer order.

5.4.5 Customer Order Servicing

This department deals with capturing and fulfilling of customer orders. CSO involves
entering and tracking customer orders. Orders are placed by wholesalers with the CSO department.
These orders are inputted into the ERP package which is used to calculate the requirements. The
computers that are assembled as an output of the production process are then matched against the
incoming customer orders.
Have constructed a simulation model of a Computer Manufacturing Supply Chain
network using ARENA software.

Information and Material flow was analyzed and weak links in the supply chain
network was identified. The objective to design existing and improved simulation
models of the supply chain network was met and the output was analyzed.

The existing system was working at a service level of 90.91%, which we have
improved to 95.45% in our simulation model. Component procurement lead times
and bottle necks at the assembly line were identified, and optimized based on ABC
classification