1. Global Supply Chain Management

4. Inventory Reduction Tactics Reduce lot sizes Improved demand forecasts Reduce lead times Reduce supply uncertainties R = dL + Z  sqrt(L)

5. Global Supply Chain Management Themes Supplier Consolidation / Purchasing and Procurement RFID VMI Green Information Technology Lean Pull

6. Global Supply Chain Management Total Sales = $10,000,000 Purchased Materials = 7,000,000 Labor and Salaries = 2,000,000 Overhead = 500,000 Profit = 500,000 Purchasing / Procurement How can we double profits to $1,000,000?

7. Global Supply Chain Management Purchasing / Procurement Important Practices Leverage buying power Commit to small number of dependable suppliers Partner with suppliers to reduce total cost

8. Supply Chain Management Some Lingo Some Global Issues The Bullwhip Effect in Supply Chains Information Technology Improvement Ideas Cases Global Supply Chain Management

10. Factors to be considered when moving from (mostly) domestic chains to global ones      Global Supply Chain Management

11. HP and DeskJet Background. Problems and Goals. Potential Solutions. HP Solution.

12. Global Supply Chain Management

13. 0 200 400 600 800 Weeks Bullwhip Effect due to Seasonal Sales of Campbell Soup Order Quantity 152 Shipments from Manufacturer to Distributors Retailers’ Sales Results: Global Supply Chain Management

14. Supply Chain Management Systems (SCM): Automate flow of information between firm and suppliers to optimize production and delivery Supply Chain Management: Close linkage of activities involved in buying, making, moving a product Supply Chain: Network of organizations and business processes for production and distribution of products

15. Global Supply Chain Management Information Systems Can Help Supply Chain Participants:

16. Information Technology Global Supply Chain Management

17. Inbound logistics Production processes Outbound logistics Sales and marketing Customer service Information Technology UpstreamDownstream Global Supply Chain Management

18. No Yes

19. Most supply chains use inter-modal transportation, multiple transportation channels (railway, truck, etc) to move products from origin destination This creates supply chain complexities Global Supply Chain Management Logistics

20. Global Supply Chain Management Fulfillment Logistics Production Revenue and profit Cost and price Cooperation among SC partners

21. A Good SCM System will help a firm Global Supply Chain Management Decide when and what to produce, store, and move Rapidly communicate orders Track the status of orders Check inventory availability and monitor inventory levels Reduce inventory, transportation, and warehousing costs Track shipments Plan production based on actual customer demand Rapidly communicate changes in product design

22. Identify the problem(s) Haworth was facing. What alternative solutions were available to management? How well did the chosen solution work? What people, organization, and technology issues need to be addressed? Global Supply Chain Management

23. i2 Technologies – www.i2.comwww.i2.com Manugistics Supply Chain Knowledge Base – supplychain.ittoolbox.com Supply Chain Management Review – www.scmr.comwww.scmr.com CIO Magazine – www.cio.comwww.cio.com About Inc. (Logistics/Supply Chain) – logistics.about.com IBM - http://www-03.ibm.com/solutions/businesssolutions/scm/index.jsp Oracle/PeopleSoft Supply Chain – www.oracle.com/applications/scmwww.oracle.com/applications/scm Institute for Supply Chain Management – www.ism.wswww.ism.ws Additional SCM Resources Global Supply Chain Management

24. Inventory Management  Concepts  Weeks of supply  Turns  ABC Analysis  Q System  Q Systems Total Costs  P System  Q System vs. P System

25. Global Supply Chain Management  Inventory is a stock of anything held to meet some future demand. It is created when the rate of receipts exceeds the rate of disbursements.  A stock or store of goods.  Inventory Turns (Turnover) COGS/Avg. Inventory Investment

26. Global Supply Chain Management  Weeks of supply = Average aggregate Inventory Value / Weekly Sales (at cost)  IT = COGS / Average aggregate inventory value  The Eagle Machine Company averaged $2M in inventory last year, and the COGS was $10M. If the company has 52 business weeks per year, how many weeks of supply are held in inventory? What is the inventory turnover rate?

27. Global Supply Chain Management 102030405060708090100 Percentage of SKUs Percentage of dollar value 100 — 90 — 80 — 70 — 60 — 50 — 40 — 30 — 20 — 10 — 0 — Class C Class A Class B

28. Global Supply Chain Management Booker’s Book Bindery divides SKUs into three classes, according to their dollar usage. Calculate the usage values of the following SKUs and determine which is most likely to be classified as class A. SKU NumberDescription Quantity Used per Year Unit Value ($) 1Boxes5003.00 2Cardboard (square feet) 18,0000.02 3Cover stock10,0000.75 4Glue (gallons)7540.00 5Inside covers20,0000.05 6Reinforcing tape (meters) 3,0000.15 7Signatures150,0000.45

29. Global Supply Chain Management SKU Number Description Quantity Used per Year Unit Value ($) Annual Dollar Usage ($) 1Boxes500  3.00=1,500 2Cardboard (square feet) 18,000  0.02=360 3Cover stock10,000  0.75=7,500 4Glue (gallons)75  40.00=3,000 5Inside covers20,000  0.05=1,000 6Reinforcing tape (meters) 3,000  0.15=450 7Signatures150,000  0.45=67,500 Total81,310

30. Global Supply Chain Management

32. Fixed Quantity Model, Q Continuous Review System Order a fixed amount Order cycle (time between orders) varies EOQ, C (holding and ordering costs) R - Constant demand, constant lead time - Variable demand~N, constant lead time Fixed Interval Model, P Periodic Review System Order various amounts Order cycle is fixed or constant

33. Global Supply Chain Management Constant demand, constant lead time. EOQ=Economic Order Quantity Q=Order Quantity D=Annual demand S=Order cost per order H=Annual holding cost per unit TC=Total annual costs TBO=Time between orders, order cycle time R=Reorder Point, used when LT>0 d=demand rate, dbar mean demand rate L=Lead time Constant means fixed or non-fluctuating.

34. Global Supply Chain Management Constant demand, constant lead time. On-hand inventory (units) Time Average cycle inventory QQ—2QQ—2 1 cycle Receiv e order Inventory depletion (demand rate)

35. Global Supply Chain Management Time On-hand inventory TBO L L L Order placed Order placed Order placed IP R OH Order received Order received Order received Order received

36. Global Supply Chain Management Ex: Find EOQ, TBO, and make cost comparisons Constant demand, constant lead time, LT=0. Suppose that you are reviewing the inventory policies on an item stocked at a hardware store. The current policy is to replenish inventory by ordering in lots of 360 units. Additional information given: D = 60 units per week, or 3120 units per year S = $30 per order H = 25% of selling price, or $20 per unit per year

37. Global Supply Chain Management Ex: Determine ROP Constant demand, constant lead time, LT>0. Q=300 units, LT=8 days, TBO=30 days.

38. Global Supply Chain Management Time On-hand inventory TBO 1 TBO 2 TBO 3 L1L1 L2L2 L3L3 R Order received Order placed Order placed Order received IP Order placed Order received Order received 0 IP

39. Global Supply Chain Management Average demand during lead time Cycle-service level = 85% Probability of stockout (1.0 – 0.85 = 0.15) zσ dLT R

40. Global Supply Chain Management Ex: Determine EOQ, ROP Q System Variable demand~N, constant lead time, LT>0. The Discount Appliance Store uses a fixed order quantity model. One of the company’s items has the following characteristics: Demand = 10 units/wk (assume 52 weeks per year, normally distributed) Ordering and setup cost (S) = $45/order Holding cost (H) = $12/unit/year Lead time (L) = 3 weeks Standard deviation of demand = 8 units per week Service level = 70%

41. Periodic Review System (P) PP T LLL Protection interval Time On-hand inventory IP 3 IP 1 IP 2 Order placed Order placed Order placed Order received Order received Order received IP OH Q1Q1 Q2Q2 Q3Q3 Global Supply Chain Management

42. The on-hand inventory is 10 units, and T is 400. There are no back orders, but one scheduled receipt of 200 units. Now is the time to review. How much should be reordered? Global Supply Chain Management

43. Calculating P and T Demand for the bird feeder is normally distributed with a mean of 18 units per week and a standard deviation in weekly demand of 5 units. The lead time is 2 weeks, and the business operates 52 weeks per year. The Q system called for an EOQ of 75 units and a safety stock of 9 units for a cycle- service level of 90 percent. What is the equivalent P system? Global Supply Chain Management

44. SOLUTION We first define D and then P. Here, P is the time between reviews, expressed in weeks because the data are expressed as demand per week: D = (18 units/week)(52 weeks/year) = 936 units P = (52) = EOQ D (52) = 4.2 or 4 weeks 75 936 With d = 18 units per week, an alternative approach is to calculate P by dividing the EOQ by d to get 75/18 = 4.2 or 4 weeks. Either way, we would review the bird feeder inventory every 4 weeks. Global Supply Chain Management

45. Calculating P and T We now find the standard deviation of demand over the protection interval (P + L) = 6: Before calculating T, we also need a z value. For a 90 percent cycle- service level z = 1.28. The safety stock becomes Safety stock = zσ P + L = 1.28(12.25) = 15.68 or 16 units We now solve for T: = (18 units/week)(6 weeks) + 16 units = 124 units T = Average demand during the protection interval + Safety stock = d(P + L) + safety stock Global Supply Chain Management

46. Ex: P System, Determine the Amount to Order d=30 units per day  d =3 units per day LT=2 days Service level 99% P=7 days OH=71 units Global Supply Chain Management

47. Q Model vs. P Model Global Supply Chain Management