To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Supply-Chain Design Chapter 9

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. External Value-Chain Linkages Figure 9.1 First-Tier Supplier Service/Product Provider Support Processes Supplier Relationship Process New Service/ Product Development Process Order- Fulfillment Process Business-to- Business (B2B) Customer Relationship Process Supplier Relationship Process New Service/ Product Development Process Order- Fulfillment Process Business-to- Business (B2B) Customer Relationship Process External Suppliers External Customers

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Supply Chain for a Florist Figure 9.2 Required for facilitating goods Required for explicit services Required for supporting facilities Required for implicit services Home customers Commercial customers Florist FedEx delivery service PackagingLocal delivery service Flowers – local/ international Arrangement materials Internet services Maintenance services

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Scrap flow Creation of Inventory Figure 9.3 Inventory level Output flow of materials Input flow of materials

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Inventory at Different Stocking Points Figure 9.4 SupplierManufacturing plantDistribution centerRetailer Rawmaterials Work in process Finishedgoods

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Supply Chain Figure 9.5 Tier 1 Tier 2 Supplier of materialsSupplier of services Tier 3 Legend Customer Distribution center Manufacturer

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Supply Chain Dynamics for Facial Tissue Time Order Quantity 9,000 9,000 – 7,000 7,000 – 5,000 5,000 – 3,000 3,000 – 0 0 – Consumers’ daily demand Retailers’ daily orders to manufacturer Manufacturer’s weekly orders to package supplier Package supplier’s weekly orders to cardboard supplier Figure 9.6

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Materials Management Egg supplier Sugar supplier Flour supplier Chocolate chips supplier Maintenance services supplier Purchasing domain of responsibility Figure 9.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Materials Management Egg supplier Sugar supplier Flour supplier Chocolate chips supplier Maintenance services supplier Purchasing domain of responsibility FG storage RM storage Transformation process and WIP storage Figure 9.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Materials Management Production domain of responsibility Egg supplier Sugar supplier Flour supplier Chocolate chips supplier Maintenance services supplier Purchasing domain of responsibility FG storage RM storage Transformation process and WIP storage Figure 9.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Materials Management Production domain of responsibility Egg supplier Sugar supplier Flour supplier Chocolate chips supplier Maintenance services supplier Purchasing domain of responsibility FG storage RM storage Transformation process and WIP storage Figure 9.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Materials Management Egg supplier Sugar supplier Flour supplier Chocolate chips supplier Maintenance services supplier Purchasing domain of responsibility FG storage RM storage Transformation process and WIP storage Production domain of responsibility Supermarket A distribution center Supermarket B distribution center Transportation services supplier Distribution domain of responsibility Figure 9.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Materials Management Figure 9.7 Egg supplier Sugar supplier Flour supplier Chocolate chips supplier Maintenance services supplier Purchasing domain of responsibility Supermarket A distribution center Supermarket B distribution center Transportation services supplier Distribution domain of responsibility FG storage RM storage Transformation process and WIP storage Production domain of responsibility

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Inventory Measures Average inventory = $2 million Cost of goods sold = $10 million 52 business weeks per year Weeks of supply = = 10.4 weeks $2 million ($10 million)/(52 weeks) Inventory turns = = 5 turns/year $10 million $2 million Example 9.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Inventory Measures Figure 9.8

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. TABLE 9.1SUPPLY–CHAIN PROCESS MEASURES Supply-Chain Process Measures   Percent of orders taken accurately   Time to complete the order placement process   Customer satisfaction with the order placement process Customer Relationship   Percent of incomplete orders shipped   Percent of orders shipped on time   Time to fulfill the order   Percent of botched services or returned items   Cost to produce the service or item   Customer satisfaction with the order fulfillment process Order Fulfillment   Percent of suppliers’ deliveries on time   Suppliers’ lead times   Percent defects in services and purchased materials   Cost of services and purchased materials Supplier Relationship

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Supply-Chain Environments TABLE 9.2ENVIRONMENTS BEST SUITED FOR EFFICIENT AND RESPONSIVE SUPPLY CHAINS FactorEfficient Supply Chains Responsive Supply Chains DemandPredictable, low Unpredictable, high forecast errors CompetitiveLow cost, consistent Development speed, fast prioritiesquality, on-time delivery times, delivery customization, volume flexibility, variety, top quality New-service/InfrequentFrequent product introduction ContributionLowHigh margins Product varietyLowHigh

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Supply-Chain Design TABLE 9.3DESIGN FEATURES FOR EFFICIENT AND RESPONSIVE SUPPLY CHAINS InventoryLow, enable high As needed to enable fast investmentinventory turnsdelivery time Lead timeShorten, but do not Shorten aggressively increase costs Supplier Emphasize low prices, Emphasize fast delivery selection consistent quality, on-time, customization, time deliveryvariety, volume flexibility, top quality FactorEfficient Supply Chains Responsive Supply Chains Operation Make-to-stock or Assemble-to-order, make- strategy standardized services;to-order, or customized emphasize high services; emphasize volume, standardized service or product services or products variety Capacity LowHigh cushion

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Pepperidge Farm SCM System Order CommitmentOrder Commitment Transportation ManagementTransportation Management Purchasing ManagementPurchasing Management Demand ManagementDemand Management Vendor-Managed InventoryVendor-Managed Inventory Replenishment PlanningReplenishment Planning ConfigurationConfiguration Material PlanningMaterial Planning SchedulingScheduling Master PlanningMaster Planning Strategic PlanningStrategic Planning ©