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Topics for Midterm Excel Costs Supply Chain Strategy Performance measurements Distribution types Inventory Obstacles Optimization of location and capacity Risk

Excel Excel Orientation VBA Useful functions Lookup, random, function information, special copies Solver Add ins, Data Analysis

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

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

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

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

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

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

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 11

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 12

Performance - Uncertainties Quantity Response time Variety Service level Price Rate of innovation 13

Performance - Responsiveness Wide ranges of quantities Short lead times Large variety Innovation Service level Supply uncertainty Responsiveness comes at a cost 14

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 15

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

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

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

Framework

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

Inventory Role in the supply chain – alleviate mismatch between supply and demand 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 Little’s law: Inventory = Throughput x Flow time Flow time is also called cycle time

Inventory - continued Role in competitive strategy: responsiveness Components of inventory decisions: Cycle inventory – satisfies demand between replenishments Safety Stock – protects against variations in demand Seasonal Inventory – built up to counter demand that exceeds capacity Sources – from whom to buy (or make)

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?

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)

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

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

More on Information EDI Bar Coding and scanning Data warehousing – separate from operational data Internet Started with DARPA (Defense Advanced Research Projects Agency) Intranets World Wide Web Decision support systems SQL, LP, Scheduling software Definition ATP: Available to promise

Benefits of collaboration Establishing contacts Gaining Insight Joint projects

Definitions Benchmarking Identifying, understanding and adapting outstanding practices from other organizations to improve performance

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

Cycle time Definition – the total elapsed time required to complete a process (e.g. 4 years to get an engineering degree, one month to build an airplane) Little’s Law: Cycle time = Work in process/Throughput Causes of long cycle times: Waiting Old processes that don’t add value Serial vs. parallel, external vs. internal Repeated activities Batching Excessive controls

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

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

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

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

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

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

Models Capacitated Plant Location Gravity location model Allocation of demand

Capacitated Plant Location Model

Risk Tree diagram Present value Simulation