Chapter9 Slides

Operations Management, 2e/Ch. 8 Facility and Work Design©2007 Thomson South-Western 1

Chapter 9 Supply Chain Design• Value (Supply) Chain Purpose:

The basic purpose of a supply chain is to coordinate the flow of materials, services, and information along the elements of the supply chain to maximize customer value.

• U.S. Economy: $1.1 trillion in inventory ($400 billion at retail, $290 billion at wholesale, and $450 at manufacturers) for sales of $3.2 trillion.


Chapter 9 Supply Chain Design

• Three Views of Value/Supply Chains:

Input/Output View Pre- and Post-Production Services

View Hierarchical Chain Structure


Exhibit 2.1

The Value Chain – Input/Output View


Exhibit 2.3

Pre- and Postservice View of the Value Chain



Understanding Supply Chains

• Supply chain management is the management of all activities that facilitate the fulfillment of a customer order for a manufactured good to achieve satisfiedcustomers at a reasonable cost.


Exhibit 9.1

Typical Goods-Producing Hierarchical Supply Chain View

7Operations Management, 2e/Ch. 9 Supply Chain Design©2007 Thomson South-Western

Exhibit 9.2

Supply Chain Structure in the Automotive Industry

The automobile industry is an excellent example of an OEM.


Chapter 9 Supply Chain DesignThe Supply Chain Operations Reference (SCOR)

Model is based on five basic functions in SCM:

1. Plan: developing a strategy that balances resources with requirements.

2. Source: procuring goods and services to meet planned or actual demand.

3. Make: transforming goods and services to a finished state to meet demand.

4. Deliver: managing orders, transportation, and distribution to provide the goods and services.

5. Return: customer returns, maintenance, dealing with excess goods


Chapter 9 Supply Chain DesignThe Value (Supply) Chain and Dell• Dell sells highly customized personal computer,

servers, computer workstations, and peripherals.• Computers are assembled only in response to

individual orders purchased through a direct sales model.

• Dell’s value chain electronically links customers, suppliers, assembly operations, and shippers.

• Preproduction services focused on gaining the customer include corporate partnerships, technical support, and strong supplier relationships.

• Postproduction services focus on keeping the customer, including billing, shipping, returns, and technical support.


Exhibit 9.3

A Value Chain Model of Dell, Inc.


Chapter 9 Supply Chain DesignUnderstanding and Measuring Supply Chain Performance

• Supply chain metrics balance customer requirements and internal supply chain efficiency.

• Delivery reliability is measured by perfect order fulfillment.

• Responsiveness is measured by order fulfillment lead time or perfect delivery fulfillment.

• Customer-related measures measure the level of customer satisfaction.


Exhibit 9.4

Common Metrics Used to Measure Supply Chain Performance



Supply chain efficiency measures include:

Inventory Turnover (IT) =Cost of goods sold /Average inventory value (Eq. 9.1)

Inventory Days’ Supply (IDS) = Average total inventory/Cost of goods sold per day (Eq. 9.2)

Cost of Goods Sold per Day (CGS/D) =Cost of goods sold value/Operating days per year (Eq. 9.3)

Revenue per Day (R/D) =Total revenue/Operating days per year (Eq. 9.7)



Supply chain efficiency measures include:

Cash-to-Cash Conversion Cycle = IDS + ARDS - APDS (Eq. 9.4)

Accounts Receivable Days’ Supply (ARDS) = Accounts receivable value/Revenue per day (Eq. 9.5)

Accounts Payable Days’ Supply (ARDS) = Accounts payable value/Revenue per day (Eq. 9.6)

Revenue per Day (R/D) =Total revenue/Operating days per year (Eq. 9.7)


Chapter 9 Dell’s Supply Chain Cash-to-Cash Conversion Cycle• For 2003, Dell's cost of goods sold per day was CGS/D = $29.1

billion/365 days per year = $79,726. • The inventory days’ supply, which Dell calls "inventory

velocity," was IDS = $306,000/$79,726 = 3.8 days. • Dell's revenue per day using was R/D = $35.4 billion/365 days

per year = $96,986.

• ARDS = $2,586,000/$96,986 = 26.8 days • APDS = $5,989,000/$96,986 = 61.8 days. • Therefore, in 2003, Dell's cash-to-cash conversion cycle is

C2C = 3.8 days + 26.8 days – 61.8 days = - 31.2 days.


Chapter 9 Dell’s Supply Chain Cash-to-Cash Conversion Cycle

• Therefore, in 2003, Dell's cash-to-cash conversion cycle is C2C = 3.8 days + 26.8 days – 61.8 days = - 31.2 days.

• The negative value means that Dell receives customers’ payments (accounts receivable) 31.2 days, on average, before Dell has to pay its suppliers (accounts payable).

• This means that Dell's value chain is a self-funding cash model!


Exhibit 9.5

Dell Computer’s Cash-to-Cash Conversion Cycles 1996 to 2003

Cash-to-Cash Conversion Cycle: inventory days’ supply (IDS) plus accounts receivable days’ supply (ARDS)

minus accounts payable days’ supply (APDS)


Exhibit 9.6

Dell’s 2003 Negative Cash-to-Cash Conversion Cycle



• The bullwhip effect results from order amplification in the supply chain; a phenomenon that occurs when each member of a supply chain “orders up” to buffer its own inventory.

• Many firms counteract this phenomenon by modifying the supply chain infrastructure and operational processes.


Exhibit 7.7Exhibit 9.7

Order Amplification for HP Printers

Source: Callioni, Gianpaolo, and Billington, Corey, “Effective Collaboration,” OR/MS Today, October 2001, pp. 34–39.



The Bullwhip Effect (continued)• The time lags associated with

information and material flow cause a mismatch between actual customer demand and the supply chain’s ability to satisfy that demand as each component of the supply chain seeks to manage its operations from its own perspective.


Chapter 9 Supply Chain DesignDesigning the Supply Chain• Efficient supply chains are

designed for efficiency and low cost by minimizing inventory and maximizing efficiencies in process flow.

• Responsive supply chains focus on flexibility and responsive service and are able to react quickly to changing market demand and requirements.


Chapter 9 Supply Chain DesignDesigning the Supply Chain• A push system produces goods in

advance of customer demand using a forecast of sales and moves them through supply chain to points of sale where they are stored as finished goods inventory.

• A pull system produces only what is needed at upstream stages in the supply chain in response to customer demand signals from downstream stages.


Exhibit 9.8Supply Chain Push-Pull Systems and Boundaries


Chapter 9 Supply Chain DesignDesigning the Supply Chain• Postponement is the process of delaying

product customization until the product is closer to the customer at the end of the supply chain.

• An example is a manufacturer of dishwashers that would manufacture the dishwasher without the door, and maintain inventories of doors at the distribution centers. When orders arrive, the doors can be quickly attached and the unit can be shipped. This would reduce inventory requirements.


Chapter 9 Supply Chain DesignDesigning the Supply Chain• A contract manufacturer is a firm that

specializes in certain types of goods-producing activities, such as customized design, manufacturing, assembly, and packaging, and works under contract for end users.

• Some of the major global contract manufacturers are Flextronics International Ltd., Solectron, Jabil Circuit, Hon Hai Precision Industrial, Celestica Inc., and Sanmina-SCI Corporation.



Designing the Supply Chain• Outsourcing to contract

manufacturers can offer significant competitive advantages, such as access to advanced manufacturing technologies, faster product time-to-market, customization of goods in regional markets, and lower total costs resulting from economies of scale.


Chapter 9 Supply Chain Design• Multi-site management is the process of

managing geographically dispersed service-providing facilities.

• McDonald's Corporation has over 30,000

stores in 121 countries. • Bank of America has over 16,000 ATMs and

5,700 branch banks in the United States. • Federal Express operates over one million

drop off mailboxes in 215 countries. • Supply chains are vital to the operation of

multisite management organizations.



Location Decisions in Supply Chains• Location decisions can have a profound effect on

supply chain performance and a firms’ competitive advantage.

• The type of facility and its location affects the supply chain structure.

• Location decisions in supply and value chains are based on both

economic (facility costs, operating costs, and transportation costs) and

non-economic (labor availability, legal and political factors, community environment) factors.



Location Decisions in Supply Chains

Four basic decisions: • global (nation) location, • regional location, • district/community location, • local site selection.


Exhibit 9.9

Example Location Factors for Site Selection


Chapter 9 Supply Chain DesignLocation Scoring Model• Scoring model consists of a list

of major location criteria, each of which is partitioned into several levels, and an assigned score to each level that reflects its relative importance.

• Model assumes that each factor is equal in importance, however weights can be placed on each score to provide differentiation.



Center of Gravity Method• Center of gravity method

determines the X and Y coordinates (location) for a single facility.

• Takes into account locations, demand, and transportation costs to arrive at the best location.


Exhibit 9.10Facility Location Scoring Model


Exhibit 9.11 Taylor Paper Products Plant and Customer Locations: Center of Gravity Method


Exhibit 9.12 Excel Spreadsheet for Taylor Paper Products



Transportation Model• Used if all facility locations are

fixed.• Determines lowest-cost of

distributing goods from supply points (origins) to demand locations (destinations)


Exhibit 9.13 Transportation Model Spreadsheet for Arnoff Enterprises (Arnoff Enterprises.xls)


Exhibit 9.14 Optimal Distribution Plan if Denver Warehouse Is Closed



Network Location Models• Selecting the best facility location,

accounting for travels times on public roads.

• Locations are called “nodes” and volume, distance, time or cost between nodes are called “arcs”

• Goal is to minimize cost, distance traveled, and response and delivery time


Exhibit 9.15 Zone Connections for Marymount Township



Selecting Transportation Services• Services include rail, motor, air,

water, and pipeline.• Critical factors include speed,

accessibility, cost, and capability.



Supplier Evaluation• Many companies segment suppliers

based on their importance to the business and manage them accordingly.

• Texas Instruments measures suppliers’ quality performance by parts per million defective, on time deliveries, and cost of ownership.


Exhibit 9.16 Comparison of Transportation Modes (Note: The best ranking is 1.)

Selecting Transportation Services


Chapter 9 Supply Chain DesignSelecting Technology• Selecting the appropriate technology

is critical for both planning and design of supply chains as well as execution.

• Electronic data interchange and Internet links streamline information flow between customers and suppliers and increase the velocity of supply chains.



Inventory Management• An efficient distribution system

allows a company to operate with lower inventory levels, which reduces costs and provides high levels of service to customers.

• Vendor managed inventory is becoming a popular concept where the vendor monitors and manages the inventory for the customer.


Chapter 9 Solved Problem #1Evaluate the cash-to-cash conversion cycle for a company that has sales of $3.5 million, Cost of Goods Sold equal to $2.8 million, 250 operating days a year, total average on hand inventory of $460,000, accounts receivable equal to $625,000, and accounts payable of $900,100. What can you conclude about the company’s operating practices? SolutionUsing Equations 9.1 to 9.7 we computed the following:

CGS/D=Cost of goods sold value = $2,800,000 = $11,200/day Operating days per year

250

R/D = Total revenue (sales) = $3,500,000 = $14,000 per day Operating days per year 250


Chapter 9 Solved Problem #1Solution (Continued)IDS = Average total inventory = $460,000 = 41.1 days Cost of goods sold per day $11,200

IT = Cost of goods sold value = $2,800,000 = 6.1 turnsAverage inventory value $460,000

ARDS= Accounts receivable value = $625,000= 44.6 days Revenue (sales) per day $14,000

APDS = Accounts payable value = $900,100 = 64.3 days Revenue (sales) per day $14,000

Cash-to-Cash Conversion Cycle = IDS + ARDS – APDS = 41.1 + 44.6 - 64.3 = + 21.4 days.


Chapter 9 Solved Problem #1

Solution (Continued)

The firm receives the customer's payments (accounts receivable), on average, 21.4 days "after" it must pay its bills to suppliers (accounts payable).

If by improving inventory and/or accounts receivable systems and practices, the firm can shorten the 85.7 days to 64.3 days, theoretically it should not have to borrow funds to support its inventory levels.

All of these numbers should be compared to industry and competitor performance standards.


Chapter 9 Solved Problem #2A pizza restaurant wants to build a satellite kitchen in a nearby suburb. Which site would be the best?

Because sites are fixed, we need to evaluate the total weighted time from each site to the customer zone. Total weighted times are:

Site A: 26,700Site B: 23,500Site C: 30,500

Site B appears to be the best location because it minimizes total weighted travel time.


Chapter 9 Solved Problem #3An automobile dealership in a large city had four locations spread around the Standard Metropolitan Area some as far as 60 miles apart. Each location had a dealership showroom, maintenance and repair service with a parts stockroom, and used and new vehicle lots. The coordinates in miles on an X-Y grid of each city location are shown below with the number of major parts sold each month as the third coordinate. That is, Paris (20,50, 34) is X-axis = 20 miles, Y- axis = 50 miles, and 34 parts are sold per month.



Solution Solved Problem # 3Using Equation 9.8 and 9.9 we obtain:Center of gravity X-axis =20(34)+60(36)+70(56)+90(28) = 60.3

34 + 36 + 56 + 28

Center of gravity Y-axis = 50(34)+40(36)+55(56)+30(28) = 45.8

34 + 36 + 56 + 28



SolutionTo minimize the weighted distance among the four user locations the center-of-gravity method gives X coordinate = 60.3 miles and Y-coordinate = 45.8 miles. This location is a good place to start the search for property to locate a warehouse. In fact, these ideal coordinates (60.3, 45.8) are very close to the Hickory location (60, 40) so consideration should be given to add a central warehouse on this property if space is available.


Exhibit 9.17 University Campus Map Problem # 13


Binghamton City Data -- Problem # 20Exhibit 9.18


R. K. Martin Case Distribution DataExhibit 9.19

Chapter9 Slides

Documents

Transcript of Chapter9 Slides