OUTLINE Questions? Comments? Quiz next Tuesday VBA question Working on lab problem Discuss assignments 1 Remember to put your name in the document Only submit one document per homework Give sources of material you use New Homework Chapter 2 and 3 (Chopra)

Performance – Strategic fit Match the supply chain’s responsiveness to the uncertainty of supply and demand Balance between responsiveness and effectiveness (cost) 2

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 3

Performance – Inter-company Scope A strategic fit between companies in a supply chain is important because competition is shifting: From company vs. company To supply chain vs. supply chain 4

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

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

Barge transportation

Southeastern Arizona – Galiuro Mountains

Southeastern Arizona – El Paso to LA Pipeline

El Paso to LA Pipeline - Station

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

Benefits of collaboration Establishing contacts Gaining Insight Joint projects

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

International Chains – what is different?

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?

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

Summary Who owns what matters! Choice of network has long term consequences Exclusivity Customer preference

“Mr. Osborne, may I be excused? My brain is full”