Lecture 5 Supply Chain Network Analysis and Design

1. Lecture 5 Supply Chain Network Analysis and Design

2. Introduction • As firms continue their searches for new ways to lower costs and improve service to their customers, the issue of where to locate logistics and manufacturing facilities has never been more complex or critical. • In addition to enhancing the efficiency and effectiveness of a logistics/supply chain operation, the redesign of a firm’s overall network can help to differentiate a firm in the marketplace.

3. The Need for Long-Range Planning • In the short run, a firm’s logistics/supply chain network and the locations of its key facilities are fixed. • Site availability, leases, contracts, and investments make changing facility locations impractical in the short run. • In the long run, however, the design of the overall network must be thought of as variable.

4. Strategic Importance of Logistics/Supply Chain Network Design • All businesses operate in a very dynamic environment in which change is the only constant. • It is questionable whether any existing logistics/supply chain network can be truly up to date.

5. Changing Customer Service Requirements • Logistical requirements of customers are changing in numerous ways. • Some customers have intensified their demands for more efficient and more effective logistics services. • Others are seeking relationships with suppliers who can take logistical capabilities and performance to new, unprecedented levels. • As a result, the need to reevaluate and redesign logistics/supply chain networks is of great contemporary interest. • While customer service requirements may experience change, the types of customers served may also evolve over time.

6. Shifting Locations of Customer and/or Supply Markets • U.S. population shifts • service and cost requirements of move to JIT-based manufacturing • the European Union • continuing searches for lower-cost manufacturing • growing economic importance of China and the Asia-Pacific • sourcing of raw materials from offshore suppliers

7. Other factors driving design change • Change in Corporate Ownership • Cost Pressures • Competitive Capabilities • Corporate Organizational Change

8. Optimization Models • precise mathematical procedures that are guaranteed to find the “best,” or optimum, solution • optimization approaches essentially select an optimal course of action from a number of feasible alternatives

9. Simulation Models: • Simulation is defined as “the process of designing a model of a real system and conducting experiments with this model for the purpose either of understanding the behavior of the system or of evaluating various strategies within the limits imposed by a criterion or set of criteria for the operation of the system

10. Heuristic Models • Heuristic models are able to accommodate broad problem definitions, but they do not provide an optimum solution. • The use of a heuristic approach can help to reduce a problem to a manageable size and search automatically through various alternatives in an attempt to find a better solution. • To reduce the number of location alternatives, the decision maker should incorporate into the heuristic program site characteristics considered to be optimal.

11. Other Transportation Factors: • Commercial Zone is a specific blanket area, the transportation definition of a particular city or town. • Foreign Trade Zone (FTZ) is a geographic area into which importers can enter a product and hold it without paying duties—and only paying duties or customs when is it shipped into U.S. customs territory. • Transit Privilege permits the shipper to stop a shipment in transit and to perform some function that physically changes the product’s characteristic.

12. Types and Importance of Items and Service Purchased: • Generics are low-risk, low-value items and services that typically do not enter the final product. • Commodities are items or services that are low in risk but high in value. Basic production materials (bolts), basic packaging (exterior box), and transportation services are examples of commodities that enhance the profitability of the company but pose a low risk. • Distinctives are high-risk, low-value items and services such as engineered items, parts that are available from only a limited number of suppliers, or items that have a long lead time. • Criticals are high-risk, high-value items that give the final product a competitive advantage in the marketplace

13. Strategic Sourcing Methodology Five core principles are recognized as key drivers to achieve the desired levels of value: • Assess the total • Develop individual sourcing strategies • Evaluate internal requirements • Focus on supplier economics • Drive continuous improvement

14. Seven key steps are included in the overall strategic sourcing methodology: • Step 1: Project Planning and Kickoff, which suggests that a formal start to the strategic sourcing process is warranted. • Step 2: Profile Spend, to develop an accurate understanding of requirements. • Identify or reevaluate needs • Define and evaluate user requirements • Decide whether to make or buy

15. Seven key steps are included in the overall strategic sourcing methodology • Step 3: Assess Supply Market • very critical step in the strategic sourcing process • all potential sources of supply are identified • a thorough assessment of a supply market • identify all possible suppliers • prescreen all possible sources • Step 4: Develop Sourcing Strategy • develop a sourcing strategy • establish whether a supplier has the capabilities • RFP provides specific information as to what the buying company

16. Seven key steps are included in the overall strategic sourcing methodology • Step 5: Execute Sourcing Strategy • begins with an evaluation of the suppliers that remain following the RFI and RFP processes and culminates in the award of a contract. • Step 6: Transition and Integrate • Important elements of this step are the finalization of the contractual agreement, planning the transition process, and receipt or delivery of the product or service. • Step 7: Measure and Improve Performance • very important, involves making a post purchase performance evaluation.

17. Managing Sourcing and Procurement Processes • Determine the type of purchase • Determine the necessary levels of investment • Perform the procurement process • Evaluate the effectiveness of the strategic sourcing process • Were the user’s needs satisfied? • Was the investment necessary?

18. Supplier/Vendor Evaluation and Relationships • supplier/vendor relationships are a vital part of successful procurement strategies • partnership/alliance concept • competitive advantage of the company

19. Certifications and Registrations • TQM • a strategy in which entire organization focused on an examination of process variability and continuous improvement • Six Sigma • is similar to TQM its approach involves training experts • ISO 9000 • making sure that companies have standard processes in place that they follow

20. e-Sourcing and e-Procurement • the use of electronic capabilities to conduct activities and processes relating to procurement and sourcing • Advantages • Disadvantages

21. e-Commerce Models • Sell-side system: • Online businesses selling to individual companies or consumers • Electronic marketplace: • Represents a seller-operated service that consists of a number of electronic catalogs from vendors within a market • Buy-side system • This buyer-controlled e-procurement or e-commerce service • Online trading community: • maintained by a third-party technology vendor where multiple buyers and multiple sellers in a given market can conduct business

22. Production Tradeoffs • Processes that can produce a range of products are said to have economies of scope. • Low-volume production runs of a wide variety of products are required to meet changing customer demand. • Tradeoffs between production processes for goods and the costs involved in manufacturing them must also be understood. • Production and supply chain costs vary for make-to-stock, assemble-to-order, and build-to-order products.

23. Production Challenges • Intensified competition, more demanding customers, and relentless pressure for efficiency as well as adaptability • Competitive pressures for many established manufacturers and service providers • Customers’ demand for choice and rapidly changing tastes

24. Production Strategies • Machine flexibility • general purpose machines and equipment staffed by cross-trained workers provide the ability to produce different types of products • Routing flexibility • provides managers with a choice between machines for a part’s next operation • Offshoring • activity be relocated to a contract manufacturer in another country • Adaptive manufacturing • provides companies with the ability to replace planning and replanning with execution based on real-time demand

25. Production Planning • Three planning timeframes: • Long-range plans • covering a year or more, focus on major decisions regarding capacity and aggregate production plans • Medium-range plans • span 6 to 18 months and involve tactical decisions regarding employment levels and similar issues • Short-range plans • ranging from a few days to a few weeks

26. Production Process Layout • facility layout • involves the arrangement of machines, storage areas, and other resources within the four walls of a manufacturing or an assembly facility. • successful layout is one that does the following: • Reduces bottlenecks in moving people or materials • Minimizes materials-handling costs • Reduces hazards to personnel • Utilizes labor efficiently • Increases morale and ease of supervision • Utilizes available space effectively and efficiently • Provides flexibility • Facilitates coordination and face-to-face communication

27. Production Process Layouts • Project layout • fixed location layout where the product remains in place for the duration of production • Workcenter • process-focused layout that groups together similar equipment or functions • Manufacturing cell • process-focused layout that dedicates production areas to a narrow range of products that are similar in processing requirements • Assembly line • product-focused layout in which machines and workers are arranged according to the progressive sequence of operations • Continuous process facilities • similar to assembly lines, with product flowing through a predetermined sequence of stops.

28. Packaging • design issues can affect labor and facility efficiency • can provide another level of product differentiation • design impacts ability to use space and equipment • ease of handling during materials handling and transportation • protecting the goods in the package

29. Production Metrics • use of measurements and key performance indicators (KPIs) • Using KPIs that are too narrow • Encouraging wrong outcomes • Focusing on issues that are not key priorities • should be properly aligned with corporate objectives

30. Production Metrics • Total cost • all money spent on manufacturing must be summarized and the total compared to the previous period • Total Cycle Time • total cycle time is a measure of manufacturing performance that is calculated by studying major purchased components and determining the total days on hand of each one • Delivery performance • is the percentage of customer orders shipped when the customer requested them to be shipped

31. Production Metrics • Quality • This may vary by company but it must focus on quality from the perspective of the customer. • Safety • The standard metrics of accident/incident frequency, severity, and cost are important to monitor, with continuous improvement (i.e., reduction) as the goal.

32. Manufacturing Execution Systems (MES) • central software used to monitor and control production operations • linked to other enterprise tools like ERP systems, product life cycle management tools, and scheduling and planning systems