lecture 08_mgt 330_supply chain mngt

8/13/2019 Lecture 08_MGT 330_Supply Chain Mngt

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School of BusinessMGT 330: Introduction to Operations and ProductionManagement

Chapter 09: Supply ChainStrategy


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Dell is a leader because of their fast responsetime.

Customer orders are on delivery trucks in 36hours.

Their focus is on how fast inventory moves. The bulk of its components are housed within

15 minutes of each of its plants.

As customers place orders, suppliers knowwhen to ship components.

Suppliers restock the warehouse and managethe inventory.

Careful supply chain management is the key.


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Supply chain: The network of services, material,and information flows that link a firmscustomer relationship, order fulfillment, andsupplier relationship processes to those of its

supplier and customers. Supply chain management: Developing a

strategy to organize, control, and motivate theresources involved in the flow of services andmaterials within the supply chain.

Supply chain strategy: Designing a firmssupply chain to meet the competitive prioritiesof the firms operations strategy.


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Supply chain design for a service provideris driven by the need to provide supportfor the essential elements of the various

service packages it delivers.

A service packageconsists of supporting facilities

facilitating goods

explicit services

implicit services


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Required for facilitating goodsRequired for explicit services Required for supportingfacilities

Required for implicit services

Homecustomers Commercialcustomers

Florist

FedExdeliveryservice

Packaging Localdeliveryservice

Flowerslocal/international

Arrangementmaterials

Internetservices

Maintenanceservices


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Inventory: A stock of materials used to satisfycustomer demand or to support the productionof services or goods.

Scrap flow

Inventory level

Output flow of materials

Input flow of materials


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Raw materials (RM):The inventories needed for theproduction of services or goods.

Work-in-process (WIP):Items, such as componentsor assemblies, needed to produce a final product inmanufacturing.

Finished goods (FG):The items in manufacturingplants, warehouses, and retail outlets that are soldto the firms customers.


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Inventory at SuccessiveStocking Points

Supplier Manufacturing plant Distribution center Retailer

Rawmaterials

Work inprocess Finishedgoods


9/28 2007 Pearson Education

Supply ChainTier 1

Tier 2

Supplier of materialsupplier of services

Tier 3

Customer Customer Customer Customer

Distributioncenter

Distributioncenter

Manufacturer


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Average aggregate inventory value (AGV)is the totalvalue of all items held in inventory for a firm.

AGV = (# of A items)(Value of each A)+(# of B items)(Value of each B)+

Weeks of supply: The average aggregate inventory valuedivided by sales per week at cost.

Weeks of supply =Average aggregate inventory value

Weekly sales (at cost)

Inventory turnoveris annual sales at cost divided by theaverage aggregate inventory value maintained for the year.

Inventory turnover=

Annual sales at (cost)

Average aggregate inventory value



Calculating Inventory MeasuresExample 10.1

The Eagle Machine Company averaged $2 million in inventory last year, and the cost ofgoods sold was $10 million. The best inventory turnover in the industry is six turns per

year. If the company has 52 business weeks per year, how many weeks of supply wereheld in inventory? What was the inventory turnover? What should the company do?

Using InventoryEstimator Solver

Weeks of supply =2 mil/( 10 mil)(52wks.) = 10.4 weeksInventory turns =10 mil./ 2 mil. =5 turns/yr


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weeksweeks 5.1852000,200,19$ 000,821,6$

cost)(atsalesWeekly

valueinventoryaggregateAveragesupplyofWeeks

turns8.2000,821,6$

0$19,200,00turnoverInventory



Supply Chain Process Measures

Percent of orderstaken accurately Time to completethe orderplacement process Customersatisfaction withthe orderplacement process

CustomerRelationship Percent of incompleteorders shipped Percent of orders

shipped on time Time to fulfill theorder Percent of botchedservices or returneditems Cost to produce theservice or item Customer satisfactionwith the orderfulfillment process Inventory levels ofWIP and FG

OrderFulfillment Percent ofsuppliersdeliveries on time uppliers leadtimes Percent defects inservices andpurchasedmaterials Cost of servicesand purchasedmaterials

SupplierRelationship


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Return on Assets (ROA):is net income dividedby total assets.

Managing the supply chain so as to reduce the

aggregate inventory investment will reduce the totalassets portion of the firms balance sheet.

Working Capital: Money used to financeongoing operations.

Weeks of inventory and inventory turns are reflectedin working capital.

Decreasing weeks of supply or increasing inventoryturns reduces the working capital.


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Cost of Goods Sold:Buying materials at a better price, ortransforming them more efficiently, improves a firmscost of goods sold measure and ultimately its netincome.

Total Revenue: Increasing the percent of on-timedeliveries to customers increases total revenue becausesatisfied customers will buy more services and products.

Cash Flow: Cash-to-cashis the time lag between payingfor the services and materials needed to produce aservice or product and receiving payment for it.

The shorter the time lag, the better the cash flow position ofthe firm because it needs less working capital.


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Supply chain dynamics can wreak havocon supply chain performance measures.

Actions of downstream supply chain memberscan affect the operations of upstreammembers.

The bullwhip effect: The phenomenon insupply chains whereby ordering patternsexperience increasing variance as youproceed upstream in the chain.


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Volume changes. Customers may change ordered quantity or

delivery date.

Service and product mix changes. Customers may change the mix of ordered

items.

Late deliveries. Late deliveries can force a switch in production

schedules. Underfilled shipments.

Partial shipments can cause a switch inproduction schedule or quantity produced.


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Internally generated shortages of parts. Engineering changesto the design of services

or products are disruptive.

New service or product introductionsdisrupt the supply chain and may require a newsupply chain.

Service or product promotionsmay create ademand spike.

Information errorssuch as demand forecasterrors, faulty inventory counts, ormiscommunication with suppliers.


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Electronic Commerce(e-commerce) is theapplication of information and

communication technology anywhere alongthe value chain of business processes.

Business-to-Consumer Systems (B2C)allowscustomers to transact business over the

Internet. Business-to-Business Systems (B2B)involves

commerce between firms. The biggest growth area, it is currently about 70% of

the regular economy.

E Commerce and the Marketing Process


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Cost reduction: Using the Internet canreduce the costs of processing orders.

Revenue flow increase: Reduction in thetime lag associated with billing thecustomer or waiting for checks.

Global Access:Available 24 hours a day. Price flexibility: Prices can easily be

changed as the need arises.

The Customer RelationshipProcess


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1. Customers buy from Dell by web site, voice-to-voice, andface-to-face.2. Order information is transmitted to the inventory system.3. Unique product configuration information is contained inthe Traveler, a sheet that travels with the system thecustomer has ordered throughout its assembly andshipping.4. When the Traveler is pulled, all required internal parts andcomponents for a system are picked and put in a toteor

kit. (Procedure is called Kitting)5. A team uses the kit to assemble and initially test thesystem.6. Systems are thoroughly tested.7. Completed systems are boxed and placed on trucks.8. The entire assemble-to-order cycle takes only a fewhours.


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Centralized placement: Keeping all theinventory at one location such as a firms

manufacturing plant or a warehouse andshipping directly to customers.

Inventory poolingis a reduction in inventoryand safety stock because of the merging of

variable demands from customers. A higher than expected demand from one customer can

be offset by a lower-than-expected demand fromanother.

Forward placementis locating stock closer to

Inventory Placement


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Vendor-managed inventories (VMI): An extremeapplication of forward placement involving

locating inventories at the customers facilities.

Key ingredients are:

Collaborative effort requires trust & accountability.

Cost savings is realized by eliminating excess

inventory. Customer service: The supplier is frequently on site for

improved response times and reducing stockouts.

Written agreement on procedures, methods, and

schedules are clearly specified.

Vendor Managed Inventories


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Efficient supply chainsfocus on the efficientflows of services and materials, keepinginventories to a minimum. Work best where demand is highly predictable.

Responsive supply chainsare designed toreact quickly. Work best when firms offer a great variety of

services or products and demand predictability islow.


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Design Factors Efficient Supply Chains Responsive Supply Chains

Environment Factors Efficient SupplyChains Responsive Supply Chains


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Three key activities are required to attain a

lean supply chain:1. Strategic Sourcing:Identifying items orservices that are of high value or complexityand purchase them from a select set ofsuppliers with whom the firm establishes a

close relationship.2. Cost Management:Limiting the number of

suppliers and focusing on helping themreduce their costs through trust and friendlycollaboration.

3. Supplier Development:Shifting from pricenegotiations to cost management andworking with suppliers to achieve leanoperations.


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lecture 08_mgt 330_supply chain mngt

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