OUTLINE

1. OUTLINE • Questions? • Quiz results • Presentation evaluation due 10/9 • New homework due 10/9 • Review

2. Quiz Results

3. Presentation evaluation

4. Topics for Midterm: Calculation, Essay, Multiple choice and True/false • Excel • Loops • Vlookup • Solver • Costs • Supply Chain Strategy • Performance measurements • Distribution types • Obstacles • Optimization of location and capacity

5. Excel • Excel Orientation • VBA • Useful functions • Lookup, random, function information, special copies • Solver

6. Adding up the costs (example) • A plant generates 270,000 earned hours (established by standards for each of the products produced). 85% efficiency is assumed. • The cost of an hour of labor, including benefits, is $30 • Indirect labor totals $30M • Materials cost $70M • Material overhead costs are $4M • What is the cost of a product containing 0.8 hours of standard labor and $20 of material? • We first calculate the total labor rate as (30,000,000+270,000*30/0.85)/270,000=$146.40/hour

7. Adding up the costs (example continued) • Material overhead = $4M/$70M= 5.7% • Direct and indirect labor =0.8* $146.40=$117.12 • Material =$20.00 • Material Overhead= 0.057*20 =$1.14 • Total Cost =$138.26 • We can separate the direct and indirect labor into: • Direct labor = 0.8*30 =$24 • Indirect =$93.12 • And you can see why everyone attacks overhead • If you are independent, the profit would add another 10% or so. It is very dependent on the industry and level of investment

8. What is a supply chain? • All the activities required to fill a customer’s order • Objective – Maximize the overall value that is generated

9. Phases • Design • Decide on structure • Planning • Define operating policies for short term operations • Annual forecast • Operation • Implement operating policies

10. Process View • Cycles • Customer • Retailer • Distributor • Manufacturer • Supplier • Push/pull • Push : initiated by anticipation of orders • Pull : initiated by a customer order

11. Strategies • Employing resources to achieve objectives • Broad in scope • Long term • Coordination among all units • Marketing • Design Engineering • Manufacturing • Distribution • Sales • Field support

12. Performance - Introduction Competitive Strategy – set of customers’ needs that a company seeks to satisfy through its products and services All functions play a role and have their own strategies Supply chain and competitive strategies must fit together to form a coordinated strategy

13. Performance – Achieving competitive fit Competitive fit is achieved in three steps: By understanding the uncertainties in customers’ needs and the supply chain By understanding the supply chain’s capabilities By matching the strategies

14. Performance - Uncertainties Quantity Response time Variety Service level Price Rate of innovation

15. Performance - Responsiveness Wide ranges of quantities Short lead times Large variety Innovation Service level Supply uncertainty Responsiveness comes at a cost

16. Performance – Product Life Cycle Demand – uncertain to relatively certain Margins from high to low Availability essential early to capture the market Price – unimportant to important

17. Definitions • Facilities – places where product is • Stored • Assembled • Fabricated • Inventory – • Raw materials • Work in process (WIP) • Finished goods (FG) • Transportation • Spares • Facilities – where services are provided

18. Definitions - continued • Transportation – moving inventory from point to point • Ground • Road • Rail • Pipe line • Barge • Air • Ship • Information • Data • Analysis

19. Definitions - continued • Transportation – moving inventory from point to point • Ground • Road • Rail • Pipe line • Barge • Air • Ship • Information • Data • Analysis

20. Framework

21. Facilities • Role in the chain – the where of the supply chain • Role in the competitive strategy – Location, location, location • Components of decisions • Location • Capacity • Operational methods • Warehousing methods • Tradeoff: Responsiveness vs. Efficiency

22. Inventory • Role in the supply chain – alleviate mismatch between supply and demand • Role in competitive strategy: responsiveness • Increase demand that can be satisfied • Exploit economies of scale • Definitions: • Material flow (Flow time) – elapsed time between material entering the supply chain and exiting • Throughput – rate at which material moves through the chain • Flow time is also called cycle time

23. Transportation • Role: move material • Role in competitive strategy: match required responsiveness • Components of decisions: • Mode (rail, truck, air, ship, pipeline, electronic) • Route and network selection • Sourcing • Who provides transportation services?

24. Information • Role: connects the members of the chain and supports daily operations • Role in strategy: most important underpinning • Components of decisions: • Push/pull • What to share • Forecasting and planning • Pricing • Enabling technologies: Software (EDI, ERP, SCM)

25. Obstacles • Increasing variety • Shorter life cycles • Demanding customers • Decreasing vertical integration • Globalization

26. Types of Chains • Internal • Often as complex as complete chains • Good place to start integrating • Need to educate people in the organization to understand their internal supply chains • External • Consider potential conflicts among prospective members • Find common goals • Each must think they will benefit

27. International Chains – what is different? • Greater geographic and time distances • Diversity of demand and supply conditions • Wage rates • Taxes • Incentives • Political climates • Exchange rates • Special laws

28. Measuring Performance • What should measuring performance accomplish? • Basis for understanding the system • Influence behavior in the system • Provide information about results • Provide information that will initiate actions to improve the system • Create accountability in individual operations • The concept of Supply Chain Management requires that overall performance be measured, but intermediate points must also be measured to insure accountability

29. Measuring Performance (continued) • Typical internal measures • % orders on time • Inventory turns • Cycle time • Costs/Goods sold • Aging of orders

30. Measuring Performance (continued) • Typical supply chain measurements • Cycle time • % orders on time (service level) or fill rate • Order aging • Comparisons to competitors (Bench marking) • Responsiveness to changes in demand • End items sold/Total costs • Market Share

31. Chapter 4 – Designing the distribution network in a Supply Chain • Move and store product between stages • The structure of the network influences: • Response time • Variety of products • Availability of products • Customers’ experience • Visibility of orders • Returnability

32. Some basic relationships in a supply network • Lower response times require more facilities • Inventory costs increase with the number of facilities • Transportation costs decrease with the number of facilities • Total logistics costs vary parabolically with the number of facilities – there is an optimum number of facilities

33. Major types of distribution networks • Definition: Inventory Turns = Annual Sales/ average inventory • Manufacturing Storage with direct shipping (drop) • Manufacturing Storage with direct shipping and in transit merge • Distributor Storage with carrier delivery • Distributor Storage with Last Mile delivery (not carrier) • Manufacturer/Distributor Storage with customer pickup • Retail Storage with customer pickup

34. Models Capacitated Plant Location Gravity location model Allocation of demand

35. Capacitated Plant Location Model

36. Example – Capacity and Selection

37. Gravity location model

38. Network optimization model

40. Taxes Corporations in the US (and most countries) pay federal income taxes Depending on which state you are incorporated in, you also pay state income tax State Income tax is a deductible expense for calculating federal tax, but not the other way around. (now only for corporations) Look up state taxes on line Look at your ISE460 text for federal taxes but use the new ones (what do you think of them?)