1. Supply Chain Strategy and Outsourcing
Students should be able to:
Identify the important factors in designing a competitive supply
chain.
Explain the motivating reasons for outsourcing services or
products and their processes.
Discuss the factors that enabled firms to create virtual supply
chains.
Describe the key considerations businesses should make when
implementing successful outsourcing decisions.

2. Key Concepts in Operations Management

3. External Value-Chain LinkagesO M E X T R N A L S U P I
External Value-Chain Linkages
First-Tier Supplier
Service/Product Provider
Support Processes
Support Processes
Business- to- Business (B2B)
Customer Relationship Process
New Service/
Product Development Process
Business-to-Customer
(B2C)
Customer Relationship Process
New Service/
Product
Development
Process
Supplier Relationship Process
Order -Fulfillment Process
Supplier RelationshipProcess
Order -Fulfillment Process

4. “Dell’s Return-on-Invested-Capital Calculation”
ROIC Drivers:
Pricing, Product Mix, and
Volume
Sales Force Productivity
Forecasting
Material Costs
Transformation Costs
R&D & I/S Costs
Capacity Mgt
Out-of-box Audit
Logistics
Quality/Cust Service
Accounts Receivable
Terms and Timing
Inventory Turns and
Delivery
Backlog/Lead Times
Excess & Obsolete Risks
Accounts Payable Terms
and Timing
Facilities Mgt
IBU Risk/Currency Risk
Sales
Operating
Income
Cost of Goods Sold
NOPAT*
Income
Taxes
Operating Expense
ROIC
Accounts
Receivable
Working
Capital
Invested
Capital
Inventory
Accounts
Payable
Fixed
Assets
Accrued
Liabilities
*Net operating profit after taxes.

5. Inventory Measures Average inventory = $2 million
Cost of goods sold = $10 million
52 business weeks per year
Weeks of supply = = 10.4 weeks
$2 million
($10 million)/(52 weeks)
Inventory turns = = 5 turns/year
$10 million
$2 million
Example 9.1

6. Financial Measures Return on Assets Working Capital Cost of Goods Sold
Total Revenue
Cash Flow

7. Visibility - Velocity - Variability
Consider Also: A Completely New
and Faster Business Model?
Dell
Suppliers
Manufacturer
Channels
Customers
Suppliers
Manufacturer
Customers
Suppliers
Manufacturer
Customers
Visibility - Velocity - Variability

8. Supply Chain Strategies
Efficient supply chains focus on the efficient flows of services and materials, keeping inventories to a minimum.
Work best where demand is highly predictable.
Responsive supply chains are designed to react quickly.
Work best when firms offer a great variety of services or products and demand predictability is low.

9. Environments & Design Features
Environment Factors
Efficient Supply Chains
Responsive Supply Chains
Design Factors
Efficient Supply Chains
Responsive Supply Chains

10. Delivery Performance and Profit Margin by Internet Retailer
Exhibit 4
Delivery Performance and
Profit Margin by Internet Retailer
Deliver as
Promised (DP)
Promised Delivery
Time (Days)
Actual Delivery
Margin (%)
Samgoody.com
9.44
10.00
39.64
CDUniverse.com
7.54
8.17
15.62
BarnesandNoble.com
9.96
9.78
26.38
Amazon.com
10.13
8.79
31.43
Towerrecords.com
9.00
8.54
35.14
Avg.
9.21
9.05
29.62
Under Promise/
Over Deliver (UO)
Margin
(%)
FYE.com
6.48
4.84
38.61
Alphacraze.com
17.88
13.00
13.81
BestBuy.com
11.28
6.33
36.75
CDnow.com
13.72
7.08
33.67
Walmart.com
8.58
4.19
26.12
Alldirect.com
17.24
6.80
-7.72
12.53
7.04
23.54

11. Source: David A. Taylor, “A Master Plan for Software Selection,” Supply Chain Management Review January/February 2004

12. Dell Assembler Keyboard Die Casting Speaker Connector Cable Cooler
High Value/Complex
Low Value/Simple

13. Outsourcing/Offshoring
What are the drivers for outsourcing or
offshoring?
What are the potential pitfalls for outsourcing or offshoring?

14. H-P Outsourcing Here a Part, There a Part …
New H-P server’s path to market:
Idea hatched in Singapore
Concept approved in Houston
Concept design done in Singapore
Engineering design in Taiwan; initial manufacture
Final assembly in Singapore, Australia, China, and India

16. The Shaping of Modern Value Chains
Ten Forces that Flattened the World
Berlin Wall and Windows Operating System
Web Browsers
Work Flow Software
Open Sourcing
Outsourcing

17. Outsourcing in India
Began dismantling tariff and export controls in 1991
Economy expected to grow at 7%
Focus on business services
Technology sector is strong
Low wages – high skills
100 million English speakers

18. The Shaping of Modern Value Chains
Ten Forces that Flattened the World
6. Offshoring
7. Supply Chaining
8. In-Sourcing
9. In-Forming
10. The Steroids

19. Comments on China’s Role in Global Value Chains
Economic Issues
“Glorious to be wealthy, and some people can be more wealthy than others.”
Capitalism Chinese style.
Expect 7 to 8 percent growth for next 10 years.
Constraints: Much savings but no investment; no support for small innovative businesses; 50 percent of bank loans go unpaid.
Singapore has the best Asian economy – has joint ventures in China (Singapore Industrial Park in Suzhou)
Problems for sustainable growth: pollution control; infrastructure development; inconsistent electric power.
Too much manufacturing – not enough entrepreneurial service firms.

20. Comments on China’s Role in Global Value Chains
Management Issues
Cost, Quality, and dimensions of Customer Service are key competitive priorities.
System is more important than the people because if leadership changes everything could crumble.
Must move from an “experience-driven” management style to a “scientific-driven” management style.
American experience will not always work in China – must incorporate Chinese culture and enterprises
Lower levels of staff are trained in modern practices, but their bosses are not.
Need to build a good foundation before introducing elaborate systems: quality improvement; technology from abroad.

21. Triple Convergence
Merging of the 10 flattners enabled by a global, Web-enabled playing field.
Development of business practices to promote horizontal collaboration.
Three billion people entering the playing field. (China, India, Russia, Eastern Europe, Latin America, and Central Asia).