9-supply Chain Design. OPerations Management
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Transcript of 9-supply Chain Design. OPerations Management
BBA 6TH M2
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BBA 6TH M2
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SUPPLY CHAIN DESIGN
Chapter#9
BBA 6TH M2
4 Introduction
A supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials, and components into a finished product that is delivered to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable.
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Supply Chain Design
Tota
l co
sts
Supply chain performance
New supply chain efficiency curve with changes in design and execution
Inefficient supply chain operations Area of
improved operations
Figure 9.1 – Supply Chain Efficiency Curve
Improve perform-ance
Reduce costs
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Supply Chain Design
The goal is to reduce costs as well increase performance. Supply chains must be managed to coordinate the inputs with the outputs in a
firm to achieve the appropriate competitive priorities of the firm’s enterprise processes.
The Internet offers firms an alternative to traditional methods for managing the supply chain.
A supply chain strategy is essential for service as well as manufacturing firms.
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Supply Chains
Every firm or organization is a member of some supply chain
Services Provide support for the essential elements of various services the firm
delivers
Manufacturing Control inventory by managing the flow of materials Suppliers identified by position in supply chain – “tiers” Suppliers and customers
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Homecustomers
Homecustomers
Commercialcustomers
Commercialcustomers
Flowers-on-Demand floristFlowers-on-Demand florist
PackagingPackaging Flowers: Local/International
Flowers: Local/International
Arrangement materials
Arrangement materials
FedEx delivery service
FedEx delivery service
Local delivery service
Local delivery service
InternetserviceInternetservice
Maintenance services
Maintenance services
Supply Chains
Figure 9.2 – Supply Chain for a Florist
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East Coast West Coast East Europe West Europe Retail
USA Ireland Distribution centers
ManufacturerIreland Assembly
Germany Mexico USATier 1 Major subassemblies
Germany Mexico USA ChinaTier 2 Components
Supply ChainsPoland USA Canada Australia MalaysiaTier 3 Raw
materials
Figure 9.2 – Supply Chain for a Manufacturing Firm
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Inventory and Supply Chains
Scrap flow
Inventory level
Output flow of materials
Input flow of materials
Figure 9.4 – Creation of Inventory
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Inventory and Supply Chains
Balance the advantages and disadvantages Pressures for small inventories
Inventory holding cost Cost of capital Storage and handling costs Taxes, insurance, and shrinkage
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Inventory and Supply Chains
Pressures for large inventories Customer service Ordering cost Setup cost Labor and equipment utilization Transportation cost Payments to suppliers
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Three aggregate categories Raw materials Work-in-process Finished goods
Types of Inventory
Classified by how it is created Cycle inventory Safety stock inventory Anticipation inventory Pipeline inventory
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Types of Inventory
Figure 9.5 – Inventory at Successive Stocking Points
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Cycle Inventory
Lot sizing principles
1. The lot size, Q, varies directly with the elapsed time (or cycle) between orders.
2. The longer the time between orders for a given item, the greater the cycle inventory must be.
Average cycle inventory = = Q + 0
2
Q
2
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Safety Stock and Anticipation Inventory
Safety Stock inventory
- Protects against uncertainties in demand, lead time, and supply changes
Anticipation inventory
- Used to absorb uneven rates of demand or supply
- Predictable, seasonal demand patterns lend themselves well to the use of anticipation inventory
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Estimating Inventory Levels
1. Enter the average lot size, average demand during a period, and the number of periods of lead time:
2. To compute cycle inventory, simply divide average lot size by 2. To compute pipeline inventory, multiply average demand by lead time
Cycle inventoryPipeline inventory
Average lot sizeAverage demandLead time
350
70
2
175
140
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Inventory Reduction Tactics Cycle inventory
Reduce the lot size Reduce ordering and setup costs and allow Q to be reduced Increase repeatability to eliminate the need for changeovers
Safety stock inventory Place orders closer to the time when they must be received Improve demand forecasts Cut lead times Reduce supply chain uncertainty Rely more on equipment and labor buffers
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19 Inventory Reduction Tactics Anticipation inventory
Match demand rate with production rates Add new products with different demand cycles Provide off-season promotional campaigns Offer seasonal pricing plans
Pipeline inventory Reduce lead times Find more responsive suppliers and select new carriers Change Q in those cases where the lead time depends on the
lot size
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Inventory Placement
Where to locate an inventory of finished goods Use of distribution centers (DCs) Centralized placement Inventory pooling Forward placement
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Inventory measures
Measures of Supply Chain Performance
Average aggregate inventory
value
= +Value of
each unit of item B
Number of units of item B typically on hand
Value of each unit of item A
Number of units of item A typically on hand
Weeks of supply =Average aggregate inventory value
Weekly sales (at cost)
Inventory turnover =Annual sales (at cost)
Average aggregate inventory value
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Financial measures
Total revenue Cost of goods sold Operating expenses Cash flow Working capital Return on assets
Measures of Supply Chain Performance
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Return on assets (ROA)
Increase ROA with higher net income and
fewer total assets
Total assetsAchieve the same or better performance with fewer assets
Working capitalReduce working capital by reducing inventory investment, lead times,
and backlogs
Fixed assetsReduce the number of warehouses through
improved supply chain design
Net incomeImprove profits with greater revenue and
lower costs
Measures of Supply Chain PerformanceTotal revenue
Increase sales through better customer service
Cost of goods soldReduce costs of
transportation and purchased materials
Operating expensesReduce fixed expenses by
reducing overhead associated with supply
chain operations
Net cash flowsImprove positive cash flows by reducing lead times and
backlogs
InventoryIncrease inventory turnover
Figure 9.8 – How Supply Chain Decisions Can Affect ROA
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Mass Customization
Competitive advantages
Managing customer relationships Eliminate finished goods inventory Increased perceived value of services or products
Supply chain design for mass customization Assemble-to-order strategy Modular design Postponement
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Outsourcing Processes Make-or-buy decision
Vertical integration
Backward integration Forward integration
Outsourcing
Offshoring Benefits to outsourcing Pitfalls to outsourcing
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Efficient supply chains
Responsive supply chains
Design of efficient and responsive supply chains
Strategic Implications
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Strategic Implications TABLE 9.1 | ENVIRONMENTS BEST SUITED FOR EFFICIENT AND RESPONSIVE
| SUPPLY CHAINS
Factor Efficient Supply Chains Responsive Supply Chains
Demand Predictable, low forecast errors Unpredictable, high forecast errors
Competitive priorities Low cost, consistent quality, on-time delivery
Development speed, fast delivery times, customization, volume flexibility, variety, top quality
New-service/product introduction
Infrequent Frequent
Contribution margins Low High
Product variety Low High
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Strategic Implications TABLE 9.2 | DESIGN FEATURES FOR EFFICIENT AND RESPONSIVE SUPPLY CHAINS
Factor Efficient Supply Chains Responsive Supply Chains
Operation strategy Make-to-stock or standardized services or products; emphasize high volumes
Assemble-to-order, make-to-order, or customized service or products; emphasize variety
Capacity cushion Low High
Inventory investment Low; enable high inventory turns
As needed to enable fast delivery time
Lead time Shorten, but do not increase costs
Shorten aggressively
Supplier selection Emphasize low prices, consistent quality, on-time delivery
Emphasize fast delivery time, customization, variety, volume flexibility, top quality
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