1. 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

2. 8-2 Supply Chain Strategy Questions  How does a company determine where to locate inventory and what inventory service levels to support, and how do these inventory decisions support strategy?  How do decisions in transportation and distribution, flow patterns with suppliers and distributors, and other related questions affect the strategic position of the firm?  Can the outcomes of the decisions improve a company’s cost, quality, availability, features/innovativeness, or environmental performance?  How do supply chain decisions affect availability and the sub dimensions of availability such as lead times, breadth of product line, and so on?  What are the trade-offs inherent in the logistics and supply chain system? For example, is there a trade-off between cost and service?  What are the key factors in general that dictate logistics and supply chain design?  Which factors support strategies such as customization or rapid or direct delivery?

3. 8-3 Supply chain decisions  Inventory position  Inventory levels  Planning and materials  Forecasting and demand management  Transportation choices  Reverse logistics  Supplier selection and coordination  Structure – Number of facilities, number of stages  Distribution flow  Possible customization point (push-pull)

4. 8-4 Supply Chain Decisions: Pitfalls  Lead times  Offshore sourcing and production  Lack of visibility  Multiple moves

5. 8-5 Supply chain choices source: HP

6. 8-6 Some approaches  Input and output framework  Structure based on key parameters  Using IT  Leveraging capabilities  Postponement and customization  Rapid response and direct delivery

7. 8-7 Tools for Supply Chain Decisions: Input and Output Framework  Subcategories of availability  Delivery or service time  Service level  Variation of service level of delivery time  Customization and breadth of product line or service

8. 8-8 Tools for Supply Chain Decisions: Input and Output Framework N denotes neutral, arrows denote effect

9. 8-9 Tools for Supply Chain Decisions: Inventory position as an input  Buffer before the high value-added steps  Buffer after variable lead times  Buffer before significant increases in product variety

10. 8-10 Tools for Supply Chain Decisions: Cost-Service Trade-offs

11. 8-11 Tools for Supply Chain Decisions: Cost-Service Trade-offs

12. 8-12 Tools for Supply Chain Decisions: Cost-Service Trade-offs

13. 8-13 Tools for Supply Chain Decisions: Matching Structure to Product and Market Characteristics  Factors in determining the type of logistics and supply chain strategy that might be appropriate:  Magnitude of transportation costs  Demand uncertainty  Product variety

14. 8-14 Approaches for Managing the Supply Chain: Using IT  Causes of the bullwhip effect  Demand forecasting updating or filling the pipeline  Order batching  Price fluctuation  Rationing and shortage gaming  Decentralized policies

15. 8-15 Approaches for Managing the Supply Chain: Using IT  Managing the bullwhip effect  Forecasting improvements  Structural approaches  Incentives  Alignment of metrics  Pricing  Coordination of centralization of information and policy  Supply chain visibility

16. 8-16 Approaches for Managing the Supply Chain: Postponement and Customization

17. 8-17 Approaches for Managing the Supply Chain: Postponement and Customization

18. 8-18 Approaches for Managing the Supply Chain: Implementing Externally Based Postponement Systems  What factors determine whether a push-pull system or an externally based postponement system can work and how well it can work?  Assembly or configuration capacity  Assembly or configuration lead time  Assembly modularity  Value added at distribution  Demand uncertainty  Product variety and product proliferation  Economical delivery costs and value density  What are the factors that dictate the location of the boundary or delimiter?  Product proliferation  Lead time  Value added  Variability of lead time

19. 8-19 Approaches for Managing the Supply Chain: Rapid Response and Direct Delivery

20. 8-20 Rapid Response: Trends both create great opportunities but also great pitfalls  Great opportunities in technologies such as auto ID tags and IT linkages  More opportunities for customization and direct delivery (despite last mile) Lower Costs of Scope More Capabilities and Lower Costs of Information Technology Changing Economics of Transportation Better Material Handling Capability  Complexities such as multiple moves and long lead times and resulting disasters  Poor coordination and visibility despite technology (the beer game and bullwhip)

21. 8-21 Example of Leveraging capabilities: The Storefront Concept  Sales  Service  Parts  Demonstration merchandise  Inventory  Customer contact There is no reason why these cannot be separated The storefront is based on the notion that the retailing or dealer aspect of a distribution chain performs many functions

22. 8-22 The Approach was implemented at Union Carbide’s Packaged Gas Business  Carbide delivers cylinders of gas (or bulk gas) and supplies to branches from plants.  Carbide converted some branches to storefronts - Customer contact points and “walk-in” service points.  The service was still the same.  The economics was an elimination of three steps out of five. 1 - Filling and Storing cylinders and parts centrally 2 - Loading cylinders and parts on trailers and delivering them to branches 3 - Unloading and storing cylinders and parts at branches. 4 - Warehousing and handling 5 - Loading parts and cylinders on truck routes and delivering them to customers

23. 8-23

24. 8-24 The most profound example is for the car companies  Why do dealers need to be sales offices, service centers and inventory locations?  Distribution and inventory can be centralized  Sales can be decentralized and established on a different scale  In addition, the other parts of the business can establish new service entities

25. 8-25 Supply Chain Strategy: Steps to Developing  Operations strategy and supply chain choices  Mapping and supply chain tools  Feasibility of postponement and other approaches  Inventory and supply chain analysis  Cost-service trade-offs  Finalize the strategy