Chapter 10 Supply-Chain Strategy Supply-Chain Management Defined? Measuring Supply-Chain Performance Bullwhip Effect Outsourcing Defined Value Density Defined Mass Customization Defined
What is a Supply-Chain? Defined Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together Suppliers Inputs Service support operations Transformation Manufacturing Local service providers Localization Distribution Customers Output Services Supply networks
What is Supply-Chain Management? Defined Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer.
Supply Chain Mat'l Flow Mat'l Flow Credit Flow Credit Flow Supplier VISA VISA ® ® Mat'l Flow Mat'l Flow Credit Flow Credit Flow Supplier Supplier Mfg. Mfg. Retailer Retailer Consumer Consumer Supplier Supplier Wholesaler Wholesaler Retailer Retailer Order Order Cash Cash Schedules Schedules Flow Flow Flow Flow
Formulas for Measuring Internal Supply-Chain Performance Inventory Turnover = Weeks of Supply =
Example of Measuring Internal Supply-Chain Performance Suppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million. This company is used to having any inventory turn ratio of 10. What is this year’s Inventory Turnover ratio? What does it mean?
Example of Measuring Supply-Chain Performance (Continued) Inventory Turnover
Common practice is to measure within a function: Supply Chain Measures Common practice is to measure within a function: Supplier Plant Distribution Customer Center Price Cost Efficiency Output Cost Quality Speed Flexibility Inventory Stock Rotation Space
Measure Across Supply Chain Nodes Cycle Time On-time Delivery Vendor Managed Inventory Cycle Time Delivery Reliability Product Availability Cycle Time Order Completion Performance
Total Supply Chain Inventory Sum of inventory on hand at each node of the supply chain Supplier, Manufacturer, Distributor, Retailer Measurement Timing: Weekly data collection
Bullwhip Effect Orders to a supplier have a larger variance than sales to a buyer These distortions amplify as they move upstream, back to suppliers
What is the Bullwhip Effect?
Causes of the Bullwhip Effect Price fluctuations Periodic order policies Rational/shortage gaming Production schedules based on forecasts of wholesaler demand versus consumer demand
Hau Lee’s Concepts of Supply Chain Management Hau Lee’s approach to supply chain (SC) is one of aligning SC’s with the uncertainties revolving around the supply process side of the SC A stable supply process has mature technologies and an evolving supply process has rapidly changing technologies Types of SC’s Efficient SC’s Risk-Hedging SC’s Responsive SC’s Agile SC’s 7
Hau Lee’s SC Uncertainty Framework Demand Uncertainty Low (Functional products) High (Innovative products) Low (Stable Process) High (Evolving Supply Uncertainty Efficient SC Ex.: Grocery Responsive SC Ex.: Computers Risk-Hedging SC Ex.: Hydro-electric power Agile SC Ex.: Telecom 7
What is Outsourcing? Defined
Reasons to Outsource Organizationally-driven Improvement-driven Financially-driven Revenue-driven Cost-driven Employee-driven
Logistics The process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirement.
Value Density Defined Value density is defined as the value of an item per pound of weight. It is used as an important measure when deciding where items should be stocked geographically and how they should be shipped.
Mass Customization Defined Mass customization is a term used to describe the ability of a company to deliver highly customized products and services to different customers.