International Supply Chain Management PDF

International Supply Chain Management Chapter 1 - Introduction to Supply Chain Management 1.1 What Starts a Supply Chain? Supply Chain means all the nodes and processes encompassed within the following flows: flow of materials, flow of information and reverse flows. Flow...

International Supply Chain Management Chapter 1 - Introduction to Supply Chain Management 1.1 What Starts a Supply Chain? Supply Chain means all the nodes and processes encompassed within the following flows: flow of materials, flow of information and reverse flows. Flow of materials: Raw materials, work in progress and finished goods. This goods flow encompasses the supplier’s supplier through to the end consumer. Flow of information: Examples → order confirmation or dispatch advice. Reverse flows: Examples → money (payment of supplier), goods (quality defect products or obsolete products), information (customer feedback), packaging material (outer cartons), transportation equipment (cages, pallets or containers). Two forces can start a supply chain: 1. Product supply. The supply chain starts in advance of customer orders. Commodities, such as tea, coffee, rice, bread, milk and most other basic consumer products are more likely to be produced on a product supply basis. The same applies to small household equipment, electronics and general fashion clothes—mostly these are sourced, produced and shipped in advance. 2. Customer demand. The customer order starts the chain of supply, manufacturing and transport activities of your desired product. These products are typically characterized by a high degree of customization or product innovation. Some typical products of customer demand driven products are: tailor-made clothes, customized tools and dinner in an up-market fish restaurant. 1.2 A Functional View of Supply Chain Management In order to understand the supply chain better, it makes sense to consider the broad spectrum of generic functional processes in the supply chain. 1. Planning. The functional plan describes where demand and supply are balanced to develop a course of action to meet sourcing, production and delivery needs. 2. Purchasing. The next step is to find suppliers in order to source your materials that you need for production. You might also decide to source services such as transport and warehousing. This source function is sometimes called purchasing or procurement, and it describes the process of buying goods or services to meet planned or actual demand. The emphasis in this stage of the process is on selecting suppliers, establishing policies and assessing performance. 3. Manufacturing. Once demand and supply are planned, and materials are sourced, you can start with the actual manufacturing or making of the products. The header make in this model describes all processes that transform your raw materials or sub-assemblies into the finished product with the aim to meet customer demand. 4. Delivery. After manufacturing, your products are ready for distribution or delivery. Under the deliver function, all supply chain processes are included that provide finished goods to customers. Thus, the order management, warehousing and transport management all form part of this process. 5. Return. The last process in the chain concerns reverse logistics or product return. This functional process comprises all tasks that are associated with the return of product. Returns can occur for quality reasons, for recycling or for post-delivery customer support. 1.3 Supply Chain Architecture Simple supply chain: The supply chain consists of three nodes. The supplier, the company and the customer. Extended supply chain: The extended supply chain considers three additional supply chain nodes. On the upstream side (towards supply), there is the supplier’s supplier or the ultimate supplier at the beginning of the extended chain. At the downstream side (towards demand), there is the customer’s customer or the end consumer at the end of the extended supply chain. The distinction here is the different kind of customers that exist between your company and the end consumer. Customers in supply chains can be distributors, wholesalers or retailers. Distributors are companies that take inventory in bulk from manufacturers and deliver an assortment of related product lines to customers. Distributors are common in regions where retailing is fragmented, e.g. in some parts of Latin America, and for certain channels of distribution, e.g. petrol stations and airports. Wholesalers—often known as cash and carry markets—buy from distributors or manufacturers directly. They often specialize in certain product ranges and supply special industries, like hotels, restaurants and catering, with larger quantities of products. Retailers, on the other hand, stock products in smaller quantities and sell them to the general public. Finally, there are entire categories of companies that are service providers to other nodes in the supply chain. Service providers specialize in certain skills and expertise. They are often able to provide these services more efficiently than manufacturers, distributors, wholesalers, retailers or end consumers 1.4 Supply Chain Dynamics Although their set-up often appears to be static, supply chains in reality are quite dynamic. Ideally, supply chains react to changes in their environment. It is important that the rate of supply mirrors the rate of demand. The same is true for the different nodes in the supply chain. Their task is to balance the rate of product supply in accordance with the rate of customer demand. Another challenge in supply chain management is to balance the level of inventory while maintaining a high level of service. The human factor becomes highly important in supply chain performance. Silo thinking (thinking in isolation) needs to be avoided and a lack of supply chain understanding needs to be addressed. Also, loss of control, lack of service and frequent quality problems can be the consequence when dealing with many nodes in the supply chain. Therefore, the management of partners in the supply chain becomes crucial. Chapter 3 - Guide to Source in Supply Chain Management 3.1 Introduction to Sourcing Sourcing is the interface between suppliers and the buying company. At high level we can split sourcing into two main business activities. 1. Selecting new suppliers. This includes finding suppliers that provide products and/or services that best meet the required needs, analysing them and setting up contracts. 2. Manage the supplier over a period of time. This could be short, such as a one-off purchase, or it could be a much longer time period, such as a component supplier providing daily core materials over several years. There are many benefits organizations can achieve from managing sourcing well. → Sourcing in product companies generally involves dividing products or services into two distinct groups. 1. Direct items. The items are directly related to the product’s manufacturing process. 2. Indirect items. All other products and services that are needed to run the company. 3.1.1 The Purchasing Process: Pre-order Steps The purchasing process is also known as the purchase-to-pay process. The purchasing process can be divided into two parts: the pre-order and post-order process. 1. Pre-order steps. ▪ Need. The customers need for a product. ▪ Specification. What materials are we going to use? ▪ Sourcing. Looking for potential suppliers. ▪ Tendering. The buying team will select a short list of preferred suppliers. ▪ Negotiation. Items will be traded and the details finalized. ▪ Selection. The supplier that most appropriately satisfies the business needs outlined in the initial specification steps will be the ideal candidate. ▪ Contracts. With both parties signing the contract the pre-order steps are completed. 2. Post-order steps. ▪ Placing and handling orders. ▪ Progressing and delivery. This process step is split between two teams: the in-bound logistics team will be leading this step from the operational point of view, and the buying team is involved in case any service issues arise. ▪ Payment and review. The clothing company will review the supplier, usually at intervals specified in the contract. ▪ Performance indicators. The review will generally be supported with a number of performance indicators, such as service and quality measures. The review has a two-fold objective. On the one hand, the review allows the buyer to address issues with the supplier. On the other hand, it gives the supplier a chance to give feedback on the feasibility of the contract. 3.1.3 Tactical Sourcing Tactical sourcing helps achieve the sourcing benefits. Some examples of tactical sourcing activities are (read p. 47-48): ▪ Market research. ▪ Commodity analysis. ▪ Forecasting requirements. ▪ Supplier performance analysis and benchmarking. ▪ Price and cost analysis. 3.2 Strategic Sourcing Initiatives We shall now consider some of the sourcing initiatives that are taking place in today’s supply chain companies. As product companies have moved from a functional structure to a category management structure, category sourcing has become a strategic goal. 3.2.1 Category Sourcing or Category Management Category Sourcing (CS) or Category Management (CM) are concepts where the products or services an organization requires are broken down into discrete groups of related products. A specific team is allocated for each product group or category. These categories can be managed and operated as stand- alone businesses within the organisation, often with their own profit and loss. The steps for a category sourcing process adapted from O’Brian (2009): 1. Profile the category group. The sourcing team will establish how many suppliers there are and what power they have. Power is an important concept in CS or CM. The more powerful a supplier, the more leverage they have in negotiations. If a component can only be produced by one supplier and it is an essential part of a product, the supplier can dictate terms much more easily than if there were a hundred competing suppliers providing the same component. 2. Select the sourcing strategy. Buyers can choose what strategy to use. 3. Generate the supplier portfolio. Potential suppliers that satisfy the required criteria, such as size, credit rating, company ethics, or sustainability requirements, are recorded. 4. Follow the purchasing process. This step refers back to the pre- and post-order steps. 5. Negotiation. Explained later on in the chapter! Going back to step one of the category sourcing process, the sourcing strategy matrix adapted from Kraljic (1983) is a tool to segment the different category groups. The matrix is a useful way to categorize items and to set different strategies to manage risk. The matrix tells us that we should take different approaches when managing different categories. ▪ Routine items. These are low expenditure items and if the suppliers fail to deliver, there is usually little risk to the business. ▪ Bottleneck items. These usually have a low spend but provide significant risk to an organization if there is no supply. Bottleneck items are often low in number, but if out of stock, thus can stop production. ▪ Leverage items. These usually have a high spend but there are many suppliers and it is not critical if a supplier fails to deliver. It is important to invest time in sourcing leverage items as there is an opportunity to reduce the money spent and make them routine items. ▪ Critical items. These items, often bought in large quantities, can be classified as high in expenditure and high in risk. 3.2.2 Supplier Relationship Management Supplier Relationship Management (SRM) is the process that looks at proactively managing the link between buyer and supplier. It is a mutually beneficial process that works in two ways and should improve the performance of both. Some benefits of SRM include: ▪ Breaking down functional barriers and functional mindsets. ▪ Promoting innovation and joint thinking for “doing things better”. ▪ Improving supply chain visibility for buyer and supplier. ▪ Sharing assets across supply chain, removing duplications. ▪ Enhancing forward looking visibility giving more reliability to all parties. In SRM, there are different models of buyer and supplier interaction. Basic relationship approach: Sometimes referred to as the bow-tie model, there is only one single point of contact. This model is easy to manage, as there are only two people involved in the B2B relationship. The downside of this approach is that decision-making might take longer, and the relationship is very much dependent on the two personalities in charge. Interdependent relationship approach: Its set-up resembles the shape of a diamond. There are now many points of contact, and the main business customer teams work closely with the corresponding supplier teams. 3.2.3 Sustainability and Responsible Sourcing Supply chain companies must invest in sustainability and responsible sourcing strategies for ethical, financial and reputational reasons. For an organisation that buys products and services this will encompass three key areas under the header of sustainability: environment, human rights and business integrity. 3.2.4 Sourcing in the Digital Age The digital age can provide great benefits for buyers, for example transparent sourcing. This is the ability to trace back the origins of products and not only supports challenges like a product recall, but also gives organizations a competitive edge. Customers see value in knowing the provenance (a product’s history) and helps companies establish trust and reputation. This requires “traceability”, the ability to identify the past or current location of an item, as well as to know an item’s history. Digital technology that supports transparent sourcing often includes bar codes, 2D codes and batch codes. Bar codes are highly standardized on products, cases/boxes and pallets, requiring bar code labels and readers. Two-dimensional (2D) codes are read often with a mobile device, a common one being the QR codes. Batch codes are printed on products or packaging. Cloud platforms are able to pull together provenance information for example audit records and certificates for products that buyers can use to validate a potential supplier’s product. 3.3 Sourcing Management Tools We have selected two tools that are used very commonly in sourcing: negotiation and cost management. 3.3.1 Negotiation Central to the concept of negotiation is the process of giving and getting concessions. To make a concession means to give in. This does not necessarily mean that the seller lowers the price. There are other concessions that can be made, such as on the delivery terms or after sales service level. In supply chain sourcing, negotiation usually takes place between two parties: the buyer and the supplier. The four main stages of negotiation are: 1. Establish if negotiation is required. 2. Plan the negotiation. Planning the negotiation well increases the chance of success. In the planning stage, you should create your wish list—items that are of high value to you, but hopefully low cost to the other party. Here you must also agree on the separate roles that you will be representing, including the chief negotiator, summarizer (who helps to buy thinking time and clarifies the agreement at each stage) and any observers you wish to appoint. Finally, the selection of the negotiation site is important. The agreement zone is a very important part of the plan. It is the realistic outcome of where you can afford to be in a negotiation. 3. Execute the negotiation. After planning, the execution phase is most important in negotiations. To optimize this step, you may decide to: ▪ Set a public and joint agenda, to manage the scope and time for the negotiation. ▪ Focus on making proposals. Propose, don’t argue and base statements on facts. ▪ Trade, using “If... then” and don’t give concessions away for nothing. ▪ Use and observe tactics from the other side. ▪ Close effectively and don’t give away last minute concessions because you’re pleased with how it went. 4. Deliver the agreement. 3.3.2 Cost Management Let’s now have a look at cost management, sometimes called cost analysis, what a supplier’s product or service should cost. You can break down the total product cost into three elements: 1. Fixed costs. Remain constant with different levels of volume. 2. Variable costs. Costs that change with volume. 3. Semi-variable costs. A mix of fixed and variable costs. In terms of managing these costs strategically, there are some sourcing tools that are commonly used (read p. 55-56): ▪ Commodity purchasing. ▪ Value engineering and analysis. ▪ Non-value added improvements. ▪ Total cost of ownership. ▪ Price analysis. Chapter 4 - Guide to Make in Supply Chain Management 4.1 Introduction to Make The term make describes the process that transforms inputs into outputs, e.g. raw materials into finished goods. Make is also known as the manufacturing, assembling, processing or production function, and can be defined as the physical act of making the product. 4.1.1 From Craft to Mass Manufacturing Manufacturing started with craft manufacturing where items used to be made by hand and with the aid of tools. Craft manufacturing was the common method of manufacture for all common goods in the pre-industrialized world. There are several advantages of craft manufacturing: the product is unique and typically of extremely high quality. With the industrial revolution in the early twentieth century, mass manufacturing replaced craft manufacturing in many industries. With mass production, all parts were now standardised, ensuring the compatibility of a replacement part with a variety of vehicle models. Other advantages of mass manufacturing (in comparison to craft manufacturing) were the reduced manufacturing time and therefore the greater manufacturing output. Human error and variation was also reduced as process steps were highly standardised and tasks were predominantly carried out by machinery. Today, most common goods and consumer products are manufactured with the help of machinery and mass manufacturing. Mass manufacturing today is mostly supply driven. The process of making something by hand has been largely replaced by automation, computerisation or the use of manufacturing robots and intelligent machines. Whilst machine has become more important in the make process, this does not mean that man, method and material have lost their roles. 4.1.2 Five Types of Manufacturing Process Businesses have a range of choices to make between different modes (method) of manufacturing depending on the nature of the product and the target market. There are five classic types of manufacturing process: ▪ Project. ▪ Job shop. ▪ Batch. ▪ Line. ▪ Continuous flow. 4.1.2.1 Project The so-called project process is a one-off manufacturing process that meets very specific customer requirements and that is too large to be moved once completed (unique building). 4.1.2.2 Job Shop The job shop is also a one-off manufacturing process where the end product meets the unique order requirements of a customer. Job shop manufacturing is different from the project type as assembly usually takes place offsite. Once completed it is delivered to the customer. 4.1.2.3 Batch Batch manufacturing is also known as flow manufacturing, where similar items are provided on a repeat basis usually in larger volumes. In batch manufacturing, the process is divided into a chain of activities that take place after each other. 4.1.2.4 Line In a line process, products are passed through the same sequence of operations from the beginning to the end. There are two common forms of cell arrangements used in the make process of line manufactured products: the U-line cell and the rabbit chase cell. When the machines are placed in the shape of a narrow U, we speak of a U-line cell. A worker with sufficient skills can perform all the operations on a part by following the product along one side of the U, around the closed end of the U and back up the other long side of the U. When there are two operators assigned to the U-line cell, then the machines will be split up between the two. Having two or more workers in the U can increase the rate of output. In a rabbit chase cell, the machines are arranged in a circle, with the operator working from its centre. By moving around in a small circle the operator can follow the product using all of the machines. The cycle time can be shortened if some of the machines are automated 4.1.2.5 Continuous Flow This type of manufacturing applies to certain indiscrete products that run continuously through various refining, cooling and separating steps in the manufacturing process. In continuous flow manufacturing, the choice of process is based on the liquid or gas-like product nature and high volumes, which justifies the very high investment involved. Most providers of water and gas operate with this method. 4.1.2.6 Other Set-up Considerations Product companies can implement a combination of these five types of manufacturing processes. When moving from project or job shop manufacturing to batch, line or continuous flow, certain machine, method, materials and man features change. 4.2 Manufacturing Planning and Control Once the manufacturing set-up is clear, we need to establish methods or systems in order to plan and control the transition from input, into output → MPS & MRP (also DRP & CRP). 4.2.1 Master Production Scheduling An Master Production Schedule (MPS) is built up from demand forecasts that are established for end products and end customers. The MPS can also be built with customer orders instead of demand forecasts if available. MPS is the first step in the implementation of the overall manufacturing programme of a factory. It has two main objectives. The first objective looks at the short-term materials requirements planning. The second objective is about the long-term estimate of demands on company resources. The MPS can be considered the output plan for the factory and it is constructed by combining actual demand forecasts and customer orders. The plan is often ongoing into a 3 - 36 months horizon, which can contribute to the complexity of the schedule. To simplify, the factory planner does not normally plan every single product individually, but inputs plans according to product groups. Depending on the nature of the business, the planner has to select the appropriate level of aggregation in each case. 4.2.2 Materials Requirements Planning You are now moving from MPS into MRP. The aim of Materials Requirements Planning (MRP) is to ensure that items are available for manufacturing just when they are needed: not after but not too early either. It works by synchronising ordering and delivery from suppliers with the factory’s planned requirements. MRP has two main inputs: 1. Bill of materials. The product structure or Bill of Materials (BOM) is the “recipe” for a product. The BOM states what components are required. 2. Inventory file. The inventory file will state how many of the required components are already in stock (on hand) and therefore will not be purchased. The inventory file is important, as the total requirements will be netted against the inventory on hand. The MRP system will now have all the required inputs. It will allow the planner to have a clear plan of order quantity and timing for each component or raw material. These orders should then arrive at the right time to be available for assembly. The manufacturing plan can now be executed. 4.2.3 Capacity Requirements Planning and Distribution Requirements Planning Capacity requirements planning (CRP) is the process of discerning a firm's production capacity and whether it can meet its production goals. Distribution Requirements Planning (DRP) is the process of determining the right quality of finished goods to be sent to each distribution centre or warehouse in order to meet customer demand. During DRP, customer and forecasted demand are translated into purchase orders. 4.3 JIT Manufacturing Strategies The concept of Just-In-Time (JIT) offers an approach that organises all activities in the make process so that they happen exactly at the time that they are needed: not before and not after. Though JIT seems an obvious concept, it is worthwhile looking into its characteristics in more detail. If we compare conventional manufacturing companies to those progressive ones using the JIT concept, we can observe the following difference. Conventional companies experience long set-up times, and transportation and other lead-times. Inventory, floor space and lot sizes are likely to be large. In addition, defect rates and machine breakdowns will be high for the conventional firm as well. Progressive companies will have short set-up times, and transportation and other lead-times. Inventory, floor space and lot size will be small and machine defects will be reduced for these organisations. Overall, the manufacturing processes tend to run smoother and more efficiently than with the conventional companies. 4.3.1 JIT Philosophy JIT is a management philosophy that has been practiced in Japanese manufacturing organisations since the early 1970s. JIT was first developed and tested by Taiichi Ohno within Toyota’s manufacturing plants. Mr. Ohno and his team first developed the Kanban (Japanese for signboard) system, which involves the use of cards to indicate where manufacturing materials are needed. The Kanban philosophy states that parts and materials should be supplied at the very moment that they are required: not before and not after that. JIT extends Kanban while linking purchasing, manufacturing and logistics to each other. Faced with constraints in the end-to-end supply chain process, Mr. Ohno and his team worked towards achieving the optimal cost/quality relationship in the Toyota manufacturing process. Through the implementation of this approach, the proper use of JIT strategies for inventory and demand-pull, manufacturing has resulted in increased quality, productivity and efficiency, improved communication and decreases in costs and waste. The potential of gaining these business benefits has made JIT a very attractive concept for manufacturing organisation. 4.3.2 Elements of JIT Manufacturing The JIT philosophy is holistic in its approach. It includes elements such as the human resources as well as manufacturing, purchasing, manufacturing, planning and organising functions of a business. The three elements of JIT: ▪ People. A JIT manufacturing system cannot be implemented successfully without the support and agreement from all the people involved. Therefore, employees as well as other stakeholders, such as shareholders, labour organisations, management and potentially also the government, need to be informed at an early stage. People will be more compelled to achieve goals when they are included in the development of such goals. ▪ Plant. Under JIT manufacturing, the plant layout is arranged for maximum worker flexibility. The layout is arranged according to product rather than process. The concept of demand-pull manufacturing brings another important change within the plant. This concept involves the use of demand for a given product to signal when manufacturing should occur. This way, companies should only produce what is required in the appropriate quantity and at the right time. Lastly, the use of self-inspection and continuous improvement have to be adopted by each employee to ensure that mistakes and low quality work are corrected efficiently, and goals and standards are continuously achieved and reviewed. ▪ System. Within a JIT organisation, the system refers to the technology and processes used to link, plan and co-ordinate the activities used in manufacturing. MRP is one such system. 4.3.3 Limitations of JIT 1. Cultural difference. Since the JIT philosophy originated from Japanese culture and work ethics, it is suggested that JIT could be less successful in different cultural surroundings where resistance to change in attitude and worker philosophy exists. 2. Loss of safety stock. In traditional make strategies, large amounts of inventory are used as safety stock. The elimination of safety stock to offset inaccurate demand forecasts can cause out of stock problems. 3. Decreased individual autonomy. Under JIT, employees must stick to strict methods of manufacturing in order to maintain the system. This in turn reduces the “entrepreneurial spirit” and individual autonomy of workers, which can become a major challenge for a JIT implementation. 4. Industry-specific success. JIT success may be industry-specific. It is suggested that craft-oriented businesses with a focus on assembly of products have performed better in JIT programmes, than organisations producing commodity type products. 4.4 Lean Manufacturing There is more in the make function than manufacturing planning and optimisation of its set-up. Important features of this function are to meet customer needs, work with reliable raw materials, ensure punctual distribution and minimise manufacturing mistakes. Lean thinking and lean supply chain strategies are all about using the right level of man, machine and material to produce what is required. As a consequence, waste should be reduced as much as possible and methods and machines need to be optimised. First, we look at quality management and the philosophy of continuous improvement. Then, we identify where waste occurs in the process and what the adding value activities are. Lastly, we look at tools to reduce waste, sometimes referred to as “losses”, and help improve the manufacturing process. 4.4.1 TQM and Continuous Improvement Total Quality Management (TQM) can be defined as: A management approach for an organisation, centred on quality, based on the participation of all its members and aiming at long-term success through customer satisfaction, and benefits to all members of the organisation and to society. In manufacturing, this approach could translate into short manufacturing set-up times, material availability and high conformity to manufacturing plans. The TQM approach emphasises long-term benefits resulting from continuous improvements to man, method, machine and materials. 4.4.2 Improving Performance Through Waste Reduction Waste is another term for inefficiencies or losses (unused materials, defective finished goods, obsolete packaging etc.) that can occur in the manufacturing process and in other parts of the supply chain and that need to be reduced as much as possible in order to improve performance. Mr. Ohno and his colleagues have grouped typical wastes that occurred in manufacturing environments into the following seven categories: 1. Over-manufacturing: production ahead of demand. 2. Waiting: waiting for the next manufacturing step. 3. Defects: the effort involved in inspecting for and fixing defects. 4. Inventory: all components, work-in-progress and finished products not being processed. 5. Motion: people or equipment moving or walking more than is required to perform the processing. 6. Transport: product movement that is not actually required. 7. Inappropriate processing: due to poor tool or product design creating unnecessary activity. Each of these wastes should be reduced and, if possible, eliminated in order to achieve improved performance results 4.5 Tools to Improve Make Performance There are several tools to improve manufacturing performance. Most tools in this section centre on the elimination of losses and can therefore be seen as techniques for improving performance and efficiency. 4.5.1 Loss Tree Analysis The loss tree is a process or tool to help you identify your priorities when aiming for quality improvements. It is used where there is more than one quality problem. A loss tree is a visual aid to identify where the issues are, it allows the user to focus on specific areas rather than generating a problem list. It also allows the user to benchmark the manufacturing performance against past data or competitors. Example → In TQM and continuous improvement, you will start with the biggest loss and work towards the smallest loss. This way, you can tackle the big problems with the large impact first. 4.5.2 Five Why Analysis This method of exploring the causes of problems by asking “why?” five times is called “failure-cause” analysis or “5-why analysis”. Such exploration of causes should lead to improved methods to prevent recurrence. It is a critical component of problem solving training delivered as part of the induction into the Toyota Production System (TPS). The root cause of the problem, or the loss, is called the phenomenon in 5-why analysis. The possible reasons for the phenomenon are determined by examining the ideal conditions required to ensure a successful event. Each condition that fails is analysed closely by asking “why?” until the root cause is identified. From the answers gained actions can be identified and included in the improvement plan. This is a simple structured root cause analysis technique. It is applicable to simple issues as well as complex problems with many variables. Its basis is in simple toughness and demands in-depth understanding of the process being investigated. To conduct a 5-why analysis, information is taken from the fishbone analysis (see next section) and the issue summarised into a concise statement. 4.5.3 Fishbone Diagram The fishbone diagram is an effective problem-solving tool to be used by groups of people involved in finding the possible causes of problems. The causes can be split into the four categories we outlined earlier: man, method, materials and machine. Each of these categories is then examined in more detail and other potential causes added. Example → p. 80. 4.6 Intelligent Machines in Manufacturing Artificial intelligence (AI) can be understood as the science and engineering of making intelligent machines, especially intelligent computing programmes. Some of these machines are programmed to some “think like a human” or to “think rationally”; others focus on behaviour, that is: the machines are designed to “act like a human” or to “act rationally”. When talking about AI in the supply chain, bear in mind that what we once perceived as artificial intelligence may soon after become “common practice”. The term industry 4.0 refers to the fourth industrial revolution, the first one having been mechanization powered by the steam engine, the second one referring to mass production using electricity and the third one using computer automation. What seems a futuristic scenario from a 1950s sci-fi movie is becoming reality: machines largely organize themselves, supply chains automatically link together, orders translate into manufacturing information and this information is automatically incorporated into the production process.