Global Sourcing, or“What’s a ‘Supply Chain?’”

Dr. Ron LembkeOperations Management

Old View of the World

One company does all processing, from raw material through delivery

Supply Network View of the World

• Integrated international networks of companies process, produce and distribute products.

Spring Hill, Tennessee

Saturn Layout

Computer Example

Wacker Siltronic makes silicon wafers: buy sand grow into long crystals slice into thin wafers

Chip ProductionChip burned in a $2b “wafer fab”Wafer cut into chips and “packaged”

CD DriveChip stuffed onto board by Flextronics, Celestica, etc.CD drive assembled by separate contract manufacturer

Green Printed Circuit Board from different supplier

CD drive, with a brand name on it, sold to Gateway

SUPPLY CHAIN DESIGN

Supply Chain Design

Efficient – economies of scale. TP, toothpaste, landlines, routers

Responsive – Changing consumer needs, mass customization, build-to-order

Computers, fashion apparelRisk-Hedging – pooled resources, multiple sources of supply, more inv., share inv., need good IT

Server parts, some ag products, powerAgile – responsive to changing needs, pooled resources: Foxconn/Apple

EfficientRisk-Hedging

ResponsiveAgile

Low HighLow (stable)High (evolving)

SupplyUncert.

Demand Uncertainty

Mass Customization

Dell perfected: exactly what you want, how you want, cheaper than off the shelfHighly customized

Integrate design, processes, supply networkSupply components cheaply to production pointsFast, responsive production, quick deliveryHigher value, lower weight

Managing the Supply ChainPostponement -- withhold any modification until as long as possible. Keep product generic “vanilla”

HP BenettonHome Depot paint department

Channel Assembly -- have distributor assemble products from components

HP Inkjet Printers

Printers made in Vancouver, sent via ship through Panama Canal to EuropeEurope warehouse stocks inventory by country

physically different-- power supplymanuals different languagesSubstitution not allowed

Re-supply time very long

Euro Plugs

No standardized power supplies for EuropeDifferent power supply for every country.

HP Inkjet PrintersRedesigned printers so that power supply added in Europe

Re-engineer product, power supplyAssembly done in a warehouse (Quality?)Manuals added in EuropeMany expensive changes

Store ‘vanilla’ boxesPostpone point of differentiation25% cost reduction

Delayed Customization

Production Storage Shipping Storage

Before

After

BenettonSweaters of undyed wool, dyed once demand is knownDyeing LT much faster than productionHow many undyed sweaters to make?How many Red, Green, Blue, also, if this production process is cheaper, and you know you’ll sell some minimum amount?

Behr Paints

Small # of basesSmall # tintsUnlimited # combinationsKeep stock colors on hand?

How many gallons?Which ones?Lower labor costsHigher inventory costs

Modular Components Take advantage of modules: parts or products previously preparedRestaurants: prepared ingredients, assembled to orderSuppliers can develop new, interesting products to use more quickly, cheaply Variety is gained by different combinations of same components

Summary

What’s a Supply Chain?Examples: Saturn, computer chips

Supply Chain design:Efficient, Responsive, Risk-Hedging, Agile

Mass CustomizationPostponement

HP, Benetton, Home Depot paintChannel assembly