To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Chapter 11 - Supply-Chain Management

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Management The purpose of supply chain management is to synchronize a firm’s internal processes with those of suppliers to match the flow of materials, services, and information with customer demand.

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Creation of Inventory

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Creation of Inventory Figure 11.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Input flow of materials Creation of Inventory Figure 11.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Input flow of materials Inventory level Creation of Inventory Figure 11.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Input flow of materials Inventory level Output flow of materials Creation of Inventory Figure 11.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Input flow of materials Inventory level Scrap flow Output flow of materials Creation of Inventory Figure 11.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Inventory at Different Stocking Points

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Inventory at Different Stocking Points SupplierManufacturing plantDistribution centerRetailer Figure 11.2 Raw materials Work in process Finished goods

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply Chain

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply Chain Figure 11.3 Supplier of materialsSupplier of services Tier 3 Legend

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply Chain Figure 11.3 Supplier of materialsSupplier of services Tier 3 Tier 2 Legend

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply Chain Figure 11.3 Supplier of materialsSupplier of services Tier 1 Tier 3 Tier 2 Legend

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply Chain Figure 11.3 Supplier of materialsSupplier of services Tier 1 Tier 3 Tier 2 Legend Manufacturer

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply Chain Figure 11.3 Supplier of materialsSupplier of services Tier 1 Tier 3 Tier 2 Legend Distribution center Manufacturer

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply Chain Figure 11.3 Supplier of materialsSupplier of services Tier 1 Tier 3 Tier 2 Legend Customer Distribution center Manufacturer

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply Chain

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Electric transformers Facility maintenance services Janitorial services Programming services Electric energy backup power Office supplies Fuel supplies Supply Chain Figure 11.4

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Electric power utility Electric transformers Facility maintenance services Janitorial services Programming services Electric energy backup power Office supplies Fuel supplies Supply Chain Figure 11.4

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply Chain Figure 11.4 Electric power utility Home customers Commercial customers Other electric utilities Electric transformers Facility maintenance services Janitorial services Programming services Electric energy backup power Office supplies Fuel supplies

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Integrated Supply Chain

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Integrated Supply Chain Figure 11.5 SuppliersPurchasing ProductionDistribution Customers Phase 1: Independent supply-chain entities

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Materials Management

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Materials Management Figure 11.6 Egg supplier Sugar supplier Flour supplier Chocolate chips supplier Maintenance services supplier Purchasing domain of responsibility

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Materials Management Figure 11.6 Egg supplier Sugar supplier Flour supplier Chocolate chips supplier Maintenance services supplier Purchasing domain of responsibility

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Materials Management Figure 11.6 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

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Materials Management Figure 11.6 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

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Materials Management Production domain of responsibility Figure 11.6 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

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Materials Management Figure 11.6 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

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Materials Management Figure 11.6 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

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Materials Management Figure 11.6 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, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Integrated Supply Chain Figure 11.5 SuppliersPurchasing ProductionDistribution Customers Phase 1: Independent supply-chain entities SuppliersCustomers Internal supply chain Materials management department ProductionPurchasingDistribution Phase 2: Internal integration

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Integrated Supply Chain SuppliersPurchasing ProductionDistribution Customers Phase 1: Independent supply-chain entities SuppliersCustomers Internal supply chain Materials management department ProductionPurchasingDistribution Phase 2: Internal integration Figure 11.5 Integrated supply chain Customers Suppliers Internal supply chain Phase 3: Supply-chain integration

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Measures of Supply Chain Performance

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Inventory Measures Average aggregate inventory value Weeks of supply Inventory turnover Example 11.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Process Measures

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Process Measures Table 11.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Process Measures Table 11.1 Order Placement  Percent orders taken accurately  Time to complete the order- placement process  Customer satisfaction with the order- placement process

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Process Measures Table 11.1 Order Fulfillment  Percent of incomplete orders shipped  Percent of orders shipped on time  Time to fulfill the order  Percent of returned items or botched services  Cost to produce the item or service  Customer satisfaction with the order- fulfillment process Order Placement  Percent orders taken accurately  Time to complete the order- placement process  Customer satisfaction with the order- placement process

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Process Measures Table 11.1 Purchasing  Percent of suppliers’ deliveries on time  Suppliers’ lead times  Percent defects in purchased materials and services  Cost of purchased materials and services Order Fulfillment  Percent of incomplete orders shipped  Percent of orders shipped on time  Time to fulfill the order  Percent of returned items or botched services  Cost to produce the item or service  Customer satisfaction with the order- fulfillment process Order Placement  Percent orders taken accurately  Time to complete the order- placement process  Customer satisfaction with the order- placement process

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Environments

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Environments Table 11.2Environments Best Suited for Efficient and Responsive Supply Chains

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Environments Table 11.2Environments Best Suited for Efficient and Responsive Supply Chains Factor Demand Competitive priorities New-product introduction Contribution margins Product variety

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Environments Table 11.2Environments Best Suited for Efficient and Responsive Supply Chains FactorEfficient Supply Chains DemandPredictable; low forecast errors CompetitiveLow cost; consistent prioritiesquality; on-time delivery New-productInfrequent introduction ContributionLow margins Product varietyLow

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Environments Table 11.2Environments 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; high- performance design quality New-productInfrequentFrequent introduction ContributionLowHigh margins Product varietyLowHigh

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Design

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Design Table 11.3Design Features for Efficient and Responsive Supply Chains

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Design Table 11.3Design Features for Efficient and Responsive Supply Chains Factor Operations strategy Capacity cushion Inventory investment Lead time Supplier selection

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Design Table 11.3Design Features for Efficient and Responsive Supply Chains FactorEfficient Supply Chains Operations Make-to-stock or strategy standardized services; emphasize high volume, standardized products, or services Capacity Low cushion InventoryLow; enable high investmentinventory turns Lead timeShorten, but do not increase costs Supplier Emphasize low prices; selection consistent quality; on- time delivery

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Design Table 11.3Design Features for Efficient and Responsive Supply Chains FactorEfficient Supply Chains Responsive Supply Chains Operations Make-to-stock or Assemble-to-order, make- strategy standardized services;to-order, or customized emphasize high services; emphasize volume, standardized product or service products, or services variety Capacity LowHigh cushion 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 deliveryvolume flexibility; high- performance design quality

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Dynamics

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Dynamics (a) Figure 11.8 Customer Firm A

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Dynamics (a) Figure 11.8 Customer Firm A Firm B

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Dynamics (a) Figure 11.8 Customer Firm A Firm B Firm C

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Dynamics (a) Customer Firm A Firm B Firm C Time (b) Figure 11.8 Materials requirements

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Dynamics (a) Firm A Customer Firm A Firm B Firm C Time (b) Figure 11.8 Materials requirements

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supply-Chain Dynamics (a) Customer Firm A Firm B Firm C Firm A Time (b) Figure 11.8 Materials requirements

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Key Observations Information flow is bi-directional If our company doesn’t deliver value, someone else will (disintermediation) There’s only so much profit in a supply chain. Players in the chain collaberate by leveraging relationships, processes, and technology

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Today’s environment Margins are down over the past years, end customer prices are down. Tighter delivery windows Offshore suppliers, lower cost, longer lead times Shorter product development cycles More service expectations Integration to drive down costs.