1. OPSM 301 Operations Management Class 21: Supply Chain Strategy (Selected sections Chapter 8) Koç University Zeynep Aksin zaksin@ku.edu.tr

2. First: Project management example ActivityImmediate Predecessor(s) Normal Time (weeks) Crash Time (weeks)Cost ($) Crash Cost ($) A--6 1200-- BA121022004000 CA201636006000 DB,C10613002500 EB84600010000 FE141026007000 GD,F12812003000 HF,G10815004500

3. Crashing the project  The company wants to complete the project in 56 weeks. What is the least cost plan for crashing activities in order to complete the project in 56 weeks?  The Research and Development department of the company proposes a new process to perform activity G. The proposed process would eliminate the precedence relationship between activities F and G. That is, after the proposed process change is implemented, activity G will have activity D as its sole immediate predecessor. What is maximum amount of investment you would allocate for the implementation of this proposal if the objective of the company is to complete the project in 56 weeks?

4. 4 A Supply Chain Figure 11.1

5. Consumer Retailer Manufacturing Material Flow VISA ® Credit Flow Supplier Wholesaler Retailer Cash Flow Order Flow Schedules Flows in a Supply-Chain

6. Supply Sources: plants vendors ports Regional Warehouses: stocking points Field Warehouses: stocking points Customers, demand centers sinks Production/ purchase costs Inventory & warehousing costs Transportation costs Inventory & warehousing costs Transportation costs

7. Example: Köşebaşı Restaurant [1]  1995: first restaurant opened in Levent: hosting Chelsea Clinton, Donna Karan, Warren Beatty, Annette Bening, and the international gourmet Tom Zagat.  1999: Köşebaşı is voted one of the 50 restaurants in the world by Conde Nast Traveler magazine. Second rest. In Fenerbahce.  2000: Köşebaşı received the 26th International Tourism, Lodging and Catering Association's award in Madrid.  2001: Köşebaşı Express concept  2002 Time: "Meat lovers can rejoice at Köşebaşı. Don't bother with a mess, sit back and let your waiter make the choices”.  New restaurants: Nişantaşı (2002), Ataşehir Köşebaşı Express (2003), and Ankara (2004). Also in the summer, Köşebaşı serves in Reina and in Bodrum. [1][1] www.kosebasi.com.tr

8. Köşebaşı Restaurant SC in the summer

9.  Definition: Supply Chain Management is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements.  Notice: –Who is involved –Cost and Service Level –It is all about integration Supply Chain Management

10. Supply Chain Management: the challenge  Global optimization –Conflicting Objectives –Complex network of facilities –System Variations over time  Managing uncertainty –Matching Supply and Demand –Demand is not the only source of uncertainty

11. A Common Supply-Chain Performance Measure

12. A Case Study- Dell Computer From Business Week http://www.businessweek.com/1997/14/b3521131.htm

13. 13 A Case Study- Dell Computer  Global Leader in PC market share (until 2007-Now second after HP, but still the leader in the US)  # 1 in most admired companies list in 2005 2005 figures:  Return on Assets: 12.01% (vs 4.47% for HP)  Profit margin: 6.39% (vs 3.05% for HP) 2008 figures:  Return on Assets: 9.40% (vs. 7.49% HP)  Profit margin:4.25% (vs 9.65% for HP)

14. 14 Dell Computer  In 1984, the dominant business model in computer industry was “vertical integration”, produce everything in house  Dell outsourced production of chips, monitors etc. and focused on creating value for the customer. Intensive use of internet and EDI technology—towards “virtual integration”  Main principle of the Dell model: –Eliminate the dealers and sell directly to the customer –Build to order and not carry finished goods inventory

15. Dell Computer Summary of facts:  70% of the sales are to large corporate customers  Use electronic commerce for sales, marketing, ordering and billing –$ 6 million a day in PCs on web site in 2004  Suppliers located within 15 minutes of plant in Round Rock, Texas  Flow time of about a day (not counting delivery time)

16. 16 Dell Computer  Focus on “velocity”: how fast the inventory is moving  Inventory is a big risk in Computer industry –Costs go down – by 50% in a year –Products become obsolete Dell’s Inventory Turnover Data Year Inventory Turnover Day'sInventory 1995 9.8 35 1996 24.2 14 1997 41.7 8.5 1998 52.40 6.5 1999 52.40 6.5 2000 51.4 6 2001 63.50 5.5 2005 102.3 3.6 2006 88.8 4.1 2007 77.5 4.7 HP’s turnover: 9.75

17. Dell Computer  Inventory equivalent to 13 days of sales in 1997 (versus 25 days for Compaq) (reduced to about 4 days in 2004) –Little’s Law!  Can beat competitor’s prices by 10-15%

18. Dell Computer Supplier Relationships:  Reduced number of suppliers from 204 in 1992 to 47 in 1997– –Build long term relationships with suppliers –Buy everyday as needed, communicate inventory levels and plans to the suppliers –When a new product is introduced, supplier engineers stay within Dell plant to fix problems –For trusted suppliers, eliminate shipment to plant and unnecessary double quality control

19. A Case Study -- Dell Computer  Caliber Logistics, Inc. manages a warehouse 15 minutes from plant –Vendor managed inventory (VMI): supplier is responsible for the inventory in the warehouse, until it is used –Caliber handles transportation –Dell is billed only when parts are used  Bar codes are used to manage inventory within assembly plant –Real-time management of inventory

20. Dell Computer  Video displays are shipped directly from the manufacturer –When order is approved by finance, e-mail is sent to a 3rd party shipper like UPS –Saves $30 per display in freight costs

21. Dell Computer Display Manufacturer UPS Customer InformationProduct 1 43 2 Dell Computer (Sony)

22. Dell Computer Customer Relationships  Assemble to order in the channel: a form of postponement  Direct model means being close to the customer: –Get better information about the demand, better forecast –Understand customer needs to design new products and services that create value

23. How to choose the right supply chain? Before devising a supply chain consider the nature of the demand for your products:

24. Supply Chain Types

25. Drivers of Supply Chain Performance Efficiency Responsiveness InventoryTransportationFacilitiesInformation Supply chain structure Drivers