1. © Holmes Miller 1999 Supply Chain Management Based on slides for Chase Acquilano and Jacobs Operations Management for Competitive advantage McGraw-Hill

2. What is it? Purchasing strategies Measuring Performance Bullwhip Effect Outsourcing Mass Customization Supply Chain Management

3. Supply Chain of a Typical Original Equipment Manufacturer

4. What is Supply-Chain Management? Supply-chain management äis 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

5. Toyota’s Supply Chain

6. Digression Make vs. Buy Purchasing strategies äVertical integration äMany suppliers äFew suppliers äVirtual company

7. Vertical Integration

8. Formulas for Measuring Supply- Chain Performance One of the most commonly used measures in all of operations management is “Inventory Turnover” In situations where distribution inventory is dominant, “Weeks of Supply” is preferred and measures how many weeks’ worth of inventory is in the system at a particular time

9. Question If the “cost of goods sold” for a company is $1,000,000 and the “average aggregate inventory value” is $25,000, what is the “inventory turnover”? How many weeks of supply is there? Answer: Turnover = 40 i.e., (1,000,000/25,000=40) Weeks of supply = 1.3

10. Inventory Turnover Statistics HardwareStores: 3.5 Retail Nurseries & Garden Supply: 3.3 General Merchandise Stores: 4.7 Grocery Stores: 12.7 New & Used Car Dealers: 6.8 Gas stations & mini-marts: 39.3 Apparel &Accessories: 3.5 Furniture & home furnishings: 4.1 Drug Stores: 5.3 Liquor Stores: 6.6 Other Retail Stores: 4.3 Wholesale Groceries & related: 17.8 Vehicles & automotive: 6.9 Furniture & fixtures: 5.5 Sporting goods: 4.8 Drug store items: 8.5 Apparel & related: 5.5 Petroleum & related: 42.4 Alcoholic beverages: 8.5 Source: Bizstats.com

11. The Impact of Variability The Bullwhip Effect Tailoring the supply chain to the type of product

12. Bullwhip Effect Order Quantity Time Retailer’s Orders Order Quantity Time Wholesaler’s Orders Order Quantity Time Manufacturer’s Orders The magnification of variability in orders in the supply- chain A lot of retailers each with little variability in their orders…. …can lead to greater variability for a fewer number of wholesalers, and… …can lead to even greater variability for a single manufacturer.

13. The Beer Game Four players per team Delay Factory Delay Distributor Delay Wholesaler Delay Retailer Orders Material

14. Supply Chain Design Strategy Functional Products äStaples that people buy at retail outlets äPredictable demand and long life cycles äPhysical costs äStrategy: Minimize physical costs Innovative Products äLife cycle is just a few months (e.g. fashion clothes & computers) äDemand is unpredictable äMarket mediation costs (inventory & stockouts) äStrategy: Maximize responsiveness & flexibility Based on concepts developed by Marshall Fischer at Wharton (Penn)

15. Supply-Chain Strategy Efficient Supply Chain Responsive Supply Chain Functional ProductsInnovative Products Match Custom made clothes Gourmet food Liberal arts education Low-cal breakfast cereal Match Standard picture frames Standard eyeglass frames Sub shop

16. Exercise Go to the Mc-Graw Hill “Company Tours” link on the course’s “web links” page Select a functional and innovative product and take the tour of its operations – for example: äFunctional: Canadian Springs Water äInnovative: Corbin Motorcycle Saddles From what you see, identify supply chain issues Are there any potential mismatches? Discuss and present results to the class.

17. What is Outsourcing? Outsourcing is defined as the act of moving a firm’s internal activities and decision responsibility to outside providers Reasons to outsource Organizationally-driven Improvement-driven Financially-driven Revenue-driven Cost-driven Employee-driven New term: Offshoring

18. Outsourcing – Value Added Services Contract manufacturers äcapacity and quality Channel assembly äreduces transportation cost and damage Vendor-managed inventory ästockless purchasing

19. Exercise What are some of the social and ethical issues surrounding global sourcing? äIn the United States äIn the “source” countries? What are some arguments for? Against In your group prepare a list of pros and cons. Where do you stand on the issue?

20. Mass Customization Ability to deliver products & services tailored to needs of different customers around the world. Organization/design principles äModular design (Dell Computers) äPostponement - Flexible mix and match assembly ä(HP Printers) äEfficient supply of generic components – local make to order assembly (Paint) The goal: To design, manufacture and deliver customized products using the economies of scale of mass production

21. Customization Creates Problems Demand Prediction äForecasts errors are greater when forecasting individual products vs. a group of products Complicated operations äHow much inventory to carry äWhich products are made äto order äto stock äWhat are capacity and component forecasts Feitzinger and Lee, 1997