1. Global Sourcing, or “What’s a ‘Supply Chain?’”
Dr. Ron Lembke
Operations Management

2. Old View of the World
One company does all processing, from raw material through delivery

3. Supply Network View of the World
Integrated international networks of companies process, produce and distribute products.

4. Spring Hill, Tennessee

5. Saturn Layout

6. Computer Example Wacker Siltronic makes silicon wafers: buy sand
grow into long crystals
slice into thin wafers

7. Chip Production Chip burned in a $2b “wafer fab”
Wafer cut into chips and “packaged”

8. CD Drive Chip stuffed onto board by Flextronics, Celestica, etc.
CD drive assembled by separate contract manufacturer
Green Printed Circuit Board from different supplier
CD drive, with a brand name on it, sold to Gateway

9. Supply Chain Design

10. Supply Chain Design Demand Uncertainty Supply Uncert.
Efficient
Risk-Hedging
Responsive
Agile
Low
High
Low (stable)
High (evolving)
Supply
Uncert.
Efficient – economies of scale.
TP, toothpaste, landlines, routers
Responsive – Changing consumer needs, mass customization, build-to-order
Computers, fashion apparel
Risk-Hedging – pooled resources, multiple sources of supply, more inv., share inv., need good IT
Server parts, some ag products, power
Agile – responsive to changing needs, pooled resources: Foxconn/Apple

11. Mass Customization
Dell perfected: exactly what you want, how you want, cheaper than off the shelf
Highly customized
Integrate design, processes, supply network
Supply components cheaply to production points
Fast, responsive production, quick delivery
Higher value, lower weight

12. Managing the Supply Chain
Postponement -- withhold any modification until as long as possible. Keep product generic “vanilla” HP
Benetton
Home Depot paint department
Channel Assembly -- have distributor assemble products from components

13. HP Inkjet Printers
Printers made in Vancouver, sent via ship through Panama Canal to Europe
Europe warehouse stocks inventory by country
physically different-- power supply
manuals different languages
Substitution not allowed
Re-supply time very long

14. Euro Plugs No standardized power supplies for Europe
Different power supply for every country.

15. HP Inkjet Printers
Redesigned printers so that power supply added in Europe
Re-engineer product, power supply
Assembly done in a warehouse (Quality?)
Manuals added in Europe
Many expensive changes
Store ‘vanilla’ boxes
Postpone point of differentiation
25% cost reduction

16. Delayed Customization
Before
Production Storage Shipping Storage
After

17. Benetton Sweaters of undyed wool, dyed once demand is known
Dyeing LT much faster than production
How many undyed sweaters to make?
How many Red, Green, Blue, also, if this production process is cheaper, and you know you’ll sell some minimum amount?

18. Behr Paints Small # of bases Small # tints Unlimited # combinations
Keep stock colors on hand?
How many gallons?
Which ones?
Lower labor costs
Higher inventory costs

19. Modular Components
Take advantage of modules: parts or products previously prepared
Restaurants: prepared ingredients, assembled to order
Suppliers can develop new, interesting products to use more quickly, cheaply
Variety is gained by different combinations of same components

20. Summary What’s a Supply Chain? Supply Chain design: Mass Customization
Examples: Saturn, computer chips
Supply Chain design:
Efficient, Responsive, Risk-Hedging, Agile
Mass Customization
Postponement
HP, Benetton, Home Depot paint
Channel assembly