1. Supply-Chain Management11
Supply-Chain Management
PowerPoint presentation to accompany
Heizer and Render
Operations Management, 10e
Principles of Operations Management, 8e
PowerPoint slides by Jeff Heyl
© 2011 Pearson Education, Inc. publishing as Prentice Hall

2. Supply Chain Economics
Dollars of additional sales needed to equal $1 saved through the supply chain
Percent of Sales Spent in the Supply Chain
Percent Net Profit
of Firm 30% 40% 50% 60% 70% 80% 90%
2 $2.78 $3.23 $3.85 $4.76 $6.25 $9.09 $16.67
4 $2.70 $3.13 $3.70 $4.55 $5.88 $8.33 $14.29
6 $2.63 $3.03 $3.57 $4.35 $5.56 $7.69 $12.50
8 $2.56 $2.94 $3.45 $4.17 $5.26 $7.14 $11.11
10 $2.50 $2.86 $3.33 $4.00 $5.00 $6.67 $10.00
Table 11.4
© 2011 Pearson Education, Inc. publishing as Prentice Hall

3. Problem 11.6
Using Table 11.4, determine the sales necessary to equal a dollar of savings on purchases for a company that has: a) A net profit of 4% and spends 40% of its revenue on purchases. b) A net profit of 6% and spends 80% of its revenue on purchases.

4. Problem 11.6
Using Table 11.4: (a) Net profit of 4%, spends 40% of its revenue on purchases. It will take $3.13 in sales to equal $1 saved through purchasing. (b) Net profit of 6%, spends 80% of its revenue on purchases. It will take $7.69 in sales to equal $1 saved through purchasing.

5. Vendor Evaluation Criteria Weights Scores (1-5) Weight x Score
Engineering/research/innovation skills
.20 5
1.0
Production process capability (flexibility/technical assistance)
.15 4 .6
Distribution/delivery capability
.05 .2
Quality systems and performance
.10 2
Facilities/location .1
Financial and managerial strength (stability and cost structure)
Information systems capability (e-procurement, ERP)
Integrity (environmental compliance/ ethics)
Total
1.00
3.9
© 2011 Pearson Education, Inc. publishing as Prentice Hall

6. Problem 11.2
As purchasing agent for Woolsey Enterprises in Golden, Colorado, you ask your buyer to provide you with a ranking of “excellent,” “good,” “fair,” or “poor” for a variety of characteristics for two potential vendors. You suggest that “Products” total be weighted 40% and the other three categories’ totals be weighted 20% each. The buyer has returned the following ranking: Which of the two vendors would you select?

7. Problem 11.2

8. Problem 11.2

9. Cost of Shipping Alternatives
Value of connectors = $1,750.00
Holding cost = 40% per year
Second carrier is 1 day faster and $20 more expensive
Daily cost of holding product
= x /365
Annual holding cost
Product value
= (.40 x $1,750)/ 365 = $1.92
Since it costs less to hold the product one day longer than it does for the faster shipping ($1.92 < $20), we should use the cheaper, slower shipper
© 2011 Pearson Education, Inc. publishing as Prentice Hall

10. Problem 11.10
Monczka-Trent Shipping is the logistics vendor for Handfield Manufacturing Co, in Ohio. Handfield has daily shipments of a power- steering pump from its Ohio plant to an auto assembly line in Alabama. The value of the standard shipment is $250,000. Monczka-Trent has two options: (1) its standard 2-day shipment or (2) a subcontractor who will team drive overnight with an effective delivery of 1 day. The extra driver costs $175. Handfields's holding cost is 35% annually for this kind of inventory. a) Which option is most economical? b.) What production issues are not included in the data presented above?

11. Problem 11.10
(a) Daily holding cost = (Annual holding cost  Cost)/Days in year = (.35  $250,000)/365 = $ Difference in cost per day between shipping options = $175. Since the daily holding cost ($239.73) is more than the cost of faster shipping ($175), use the faster subcontractor. (b) Implications of added in-transit time to the production process: potential delay in activity for which the component is destined (new product development, quality test, the production process, etc.).

12. Measuring Supply-Chain Performance
Assets committed to inventory
Percent invested in inventory
= x 100
Total inventory investment
Total assets
Investment in inventory = $11.4 billion
Total assets = $44.4 billion
Percent invested in inventory = (11.4/44.4) x 100 = 25.7%
© 2011 Pearson Education, Inc. publishing as Prentice Hall

13. Measuring Supply-Chain Performance
Inventory as a % of Total Assets (with exceptional performance)
Manufacturing 15% (Toyota 5%)
Wholesale 34% (Coca-Cola 2.9%)
Restaurants 2.9% (McDonald’s .05%)
Retail 27% (Home Depot 25.7%)
Table 11.7
© 2011 Pearson Education, Inc. publishing as Prentice Hall

14. Measuring Supply-Chain Performance
Inventory turnover
Inventory turnover =
Cost of goods sold
Inventory investment
© 2011 Pearson Education, Inc. publishing as Prentice Hall

15. Measuring Supply-Chain Performance
Examples of Annual Inventory Turnover
Food, Beverage, Retail Manufacturing
Anheuser Busch 15 Dell Computer 90
Coca-Cola 14 Johnson Controls 22
Home Depot 5 Toyota (overall) 13
McDonald’s 112 Nissan (assembly) 150
Table 11.8
© 2011 Pearson Education, Inc. publishing as Prentice Hall

16. Measuring Supply-Chain Performance
Inventory turnover
Net revenue $32.5
Cost of goods sold $14.2
Inventory:
Raw material inventory $.74
Work-in-process inventory $.11
Finished goods inventory $.84
Total inventory investment $1.69
© 2011 Pearson Education, Inc. publishing as Prentice Hall

17. Measuring Supply-Chain Performance
Inventory turnover
Net revenue $32.5
Cost of goods sold $14.2
Inventory:
Raw material inventory $.74
Work-in-process inventory $.11
Finished goods inventory $.84
Total inventory investment $1.69
Inventory turnover =
Cost of goods sold
Inventory investment
= 14.2 / 1.69 = 8.4
© 2011 Pearson Education, Inc. publishing as Prentice Hall

18. Measuring Supply-Chain Performance
Inventory turnover
Net revenue $32.5
Cost of goods sold $14.2
Inventory:
Raw material inventory $.74
Work-in-process inventory $.11
Finished goods inventory $.84
Total inventory investment $1.69
Inventory turnover =
Cost of goods sold
Inventory investment
= 14.2 / 1.69 = 8.4
Average weekly cost of goods sold
= $14.2 / 52 = $.273
Weeks of supply =
Inventory investment
Average weekly cost of goods sold
= 1.69 / .273 = 6.19 weeks
© 2011 Pearson Education, Inc. publishing as Prentice Hall

19. Problem 11.12
Arrow Distributing Corp. likes to track inventory by using weeks of supply as well as by inventory turnover. a) What is its weeks of supply? b) What percent of Arrow's assets are committed to inventory? c) What is Arrow's inventory turnover?

20. Problem 11.12