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Supply Chain Design

PowerPoint Slides by Jeff Heyl

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

For Operations Management, 9e by Krajewski/Ritzman/Malhotra 2010 Pearson Education

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Supply Chain Design

Inefficient supply chain operations

Area of improved operations

Total costs

Reduce costs New supply chain efficiency curve with changes in design and execution Improve performance Supply chain performance

Figure 9.1 Supply Chain Efficiency Curve

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Supply Chain Design

The goal is to reduce costs as well increase performance. Supply chains must be managed to coordinate the inputs with the outputs in a firm to achieve the appropriate competitive priorities of the firms enterprise processes. The Internet offers firms an alternative to traditional methods for managing the supply chain.

A supply chain strategy is essential for service as well as manufacturing firms.

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Supply Chains
Every firm or organization is a member of some supply chain

Services

Provide support for the essential elements of various services the firm delivers

Manufacturing

Control inventory by managing the flow of materials Suppliers identified by position in supply chain tiers Suppliers and customers

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Supply Chains
Packaging Flowers: Local/International Arrangement materials

Maintenance services

FedEx delivery service

Local delivery service

Internet service

Flowers-on-Demand florist

Home customers

Commercial customers

Figure 9.2 Supply Chain for a Florist

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Supply Chains
Tier 3 Poland USA Canada Australia Malaysia Raw materials

Tier 2

Germany

Mexico

USA

China

Components

Tier 1

Germany

Mexico

USA

Major subassemblies

Manufacturer Ireland

Assembly

USA

Ireland

Distribution centers

East Coast

West Coast

East Europe

West Europe

Retail

Figure 9.2 Supply Chain for a Manufacturing Firm

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Inventory and Supply Chains

Input flow of materials Inventory level

Figure 9.4 Creation of Inventory

Scrap flow

Output flow of materials

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Inventory and Supply Chains

Balance the advantages and disadvantages Pressures for small inventories
Inventory
Cost

holding cost

of capital and handling costs

Storage

Taxes,

insurance, and shrinkage

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Inventory and Supply Chains

Pressures for large inventories
Customer
Ordering Setup

service

cost

cost

Labor

and equipment utilization

cost to suppliers

Transportation Payments

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Types of Inventory
Three aggregate categories

Raw materials Work-in-process Finished goods

Classified by how it is created

Cycle inventory
Safety stock inventory Anticipation inventory

Pipeline inventory
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Types of Inventory

Figure 9.5 Inventory at Successive Stocking Points

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Cycle Inventory
Lot sizing principles
1. The lot size, Q, varies directly with the elapsed time (or cycle) between orders. 2. The longer the time between orders for a given item, the greater the cycle inventory must be. Q+0 Q Average cycle inventory = = 2 2

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Safety Stock and Anticipation Inventory

Safety Stock inventory

- Protects against uncertainties in demand, lead time, and supply changes

Anticipation inventory - Used to absorb uneven rates of demand or supply - Predictable, seasonal demand patterns lend themselves well to the use of anticipation inventory
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Pipeline Inventory
Pipeline inventory
Average demand during lead time = DL

Average demand per period = d

Number of periods in the items lead time = L

Pipeline inventory = DL = dL

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Inventory Reduction Tactics

Cycle inventory

Reduce the lot size Reduce ordering and setup costs and allow Q to be reduced Increase repeatability to eliminate the need for changeovers

Safety stock inventory

Place orders closer to the time when they must be received Improve demand forecasts Cut lead times Reduce supply chain uncertainty Rely more on equipment and labor buffers
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Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Inventory Reduction Tactics

Anticipation inventory

Match demand rate with production rates Add new products with different demand cycles Provide off-season promotional campaigns Offer seasonal pricing plans

Pipeline inventory

Reduce lead times Find more responsive suppliers and select new carriers

Change Q in those cases where the lead time depends on the lot size

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Inventory Placement
Where to locate an inventory of finished goods

Centralized placement
Inventory pooling Forward placement

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