SUPPLY CHAIN DESIGN

1. OM CHAPTER 9 SUPPLY CHAIN DESIGN DAVID A. COLLIER AND JAMES R. EVANS

2. Chapter 9 Learning Outcomes l e a r n i n g o u t c o m e s LO1Explain the concept of supply chain management. LO2Describe the key issues in designing supply chains. LO3Explain important factors and decisions in locating facilities. LO4Describe the role of transportation, supplier evaluation, technology, and inventory in supply chain management.

3. Chapter 9 Supply Chain Design • 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.

4. Chapter 9 Supply Chain Design • Three Views of Value/Supply Chains: • Input/Output View (Exhibit 2.1) • Pre- and Post-Services View (Exhibit 2.3) • Typical Goods-Producing Supply Chain Structure (Exhibit 9.1)

5. Exhibit 2.1 The Value Chain – Input/Output View

6. Exhibit 2.3 Pre- and Postservice View of the Value Chain

7. Typical Goods-Producing Supply Chain Structure Exhibit 9.1

8. Chapter 9 Supply Chain Design • Understanding Supply Chains • Supply chain managementis the management of all activities that facilitate the fulfillment of a customer order for a manufactured good to achieve satisfied • customers at a reasonable cost.

9. Chapter 9 Supply Chain Design • The Supply Chain Operations Reference (SCOR) • Modelis a framework for understanding the scope of SCM based on five basic functions: • Plan: developing a strategy that balances resources with requirements. • Source: procuring goods and services to meet planned or actual demand. • Make: transforming goods and services to a finished state to meet demand. • Deliver: managing orders, transportation, and distribution to provide the goods and services. • Return: customer returns, maintenance, dealing with excess goods.

10. Chapter 9 Supply Chain Design • Designing the Supply Chain • Acontract manufactureris 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.

11. Chapter 9 Supply Chain Design • Designing the Supply Chain • Efficient supply chainsare designed for efficiency and low cost by minimizing inventory and maximizing efficiencies in process flow. • Responsive supply chainsfocus on flexibility and responsive service and are able to react quickly to changing market demand and requirements.

12. Chapter 9 Supply Chain Design • Designing the Supply Chain • A push systemproduces 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 systemproduces only what is needed at upstream stages in the supply chain in response to customer demand signals from downstream stages.

13. Chapter 9 Supply Chain Design • Designing 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 attached quickly and the unit can be shipped. This would reduce inventory requirements.

14. Multisite 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. Chapter 9 Supply Chain Design

15. Chapter 9 Supply Chain Design • Understanding and Measuring Supply Chain Performance • Supply chain metrics balance customer requirements and internal supply chain efficiency. • Delivery reliability is often measured by perfect order fulfillment. • Responsivenessis often measured by order fulfillment lead time or perfect delivery fulfillment. • Customer-relatedfocus on the ability of the supply chain to meet customer wants and needs.

16. Chapter 9 Supply Chain Design • The bullwhip effect results from order amplificationin 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.

17. Chapter 9 Supply Chain Design • 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 affect 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.

18. Chapter 9 Supply Chain Design • Location Decisions in Supply Chains • Four basic decisions: • global (nation) location • regional location • community location • local site location

19. Chapter 9 Supply Chain Design • Center of Gravity Method • The center of gravity methoddetermines the X and Y coordinates (location) for a single facility. • Takes into account locations, demand, and transportation costs to arrive at the best location.

20. Chapter 9 Supply Chain Design • Other Issues in Supply Chain Management • Selecting Transportation Services • Services include rail, motor, air, water, and pipeline. • Critical factors include speed, accessibility, cost, and capability.

21. Chapter 9 Supply Chain Design • 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.

22. Chapter 9 Supply Chain Design • 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.

23. Chapter 9 Supply Chain Design • 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(VMI)is becoming a popular concept where the vendor monitors and manages the inventory for the customer.