Global Sourcing, or “What’s a ‘Supply Chain?’” Dr. Ron Lembke Operations 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 Production Chip burned in a $2b “wafer fab” Wafer cut into chips and “packaged”

CD Drive Chip 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 Demand Uncertainty Supply Uncert. Efficient Risk-Hedging Responsive Agile Low High Low (stable) High (evolving) Supply Uncert. Efficient – economies of scale. TP, toothpaste, landlines, routers Responsive – Changing consumer needs, mass customization, build-to-order Computers, fashion apparel Risk-Hedging – pooled resources, multiple sources of supply, more inv., share inv., need good IT Server parts, some ag products, power Agile – responsive to changing needs, pooled resources: Foxconn/Apple

Mass Customization Dell perfected: exactly what you want, how you want, cheaper than off the shelf Highly customized Integrate design, processes, supply network Supply components cheaply to production points Fast, responsive production, quick delivery Higher value, lower weight

Managing the Supply Chain Postponement -- withhold any modification until as long as possible. Keep product generic “vanilla” HP Benetton Home 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 Europe Europe warehouse stocks inventory by country physically different-- power supply manuals different languages Substitution not allowed Re-supply time very long

Euro Plugs No standardized power supplies for Europe Different power supply for every country.

HP Inkjet Printers Redesigned printers so that power supply added in Europe Re-engineer product, power supply Assembly done in a warehouse (Quality?) Manuals added in Europe Many expensive changes Store ‘vanilla’ boxes Postpone point of differentiation 25% cost reduction

Delayed Customization Before Production Storage Shipping Storage After

Benetton Sweaters of undyed wool, dyed once demand is known Dyeing LT much faster than production How 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 bases Small # tints Unlimited # combinations Keep stock colors on hand? How many gallons? Which ones? Lower labor costs Higher inventory costs

Modular Components Take advantage of modules: parts or products previously prepared Restaurants: prepared ingredients, assembled to order Suppliers 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? Supply Chain design: Mass Customization Examples: Saturn, computer chips Supply Chain design: Efficient, Responsive, Risk-Hedging, Agile Mass Customization Postponement HP, Benetton, Home Depot paint Channel assembly