Chapter 10 Supply-Chain Strategy Supply-Chain Management Defined? Measuring Supply-Chain Performance Bullwhip Effect Outsourcing Defined Value Density Defined Mass Customization Defined

What is Supply-Chain Management? Defined Supply-chain management is 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.

Supply Chain Mat'l Flow Credit Flow Supplier Mfg. Retailer Consumer VISA VISA ® ® Mat'l Flow Credit Flow Supplier Mfg. Retailer Consumer Supplier Wholesaler Retailer Order Cash Schedules Flow Flow

Supply Chain Model Suppliers Plants Retail DC Store Plant DC Wholesaler September 22, 1999 Racine

Quaker and HyVee Push vs. Pull

Quaker and HyVee Push vs. Pull Tighter linkage between Quaker and HyVee means: HyVee: Quaker: Þ

Align Supply Chain Capability With Business Strategy Supply Chain Role: Supply Chain Measure:

Balancing Supply Chain Capability with Customer Demands Information Supply Chain Capability Customer Requirements Increased Costs Overtime Expediting Increased Inventory Increased Demand: Marketing programs Promotions Customer Requirements Supply Chain Capability Market Demand,New Products, Promotions Suppliers, Manufacturers, Distributors, Carriers Information

Formulas for Measuring Internal Supply-Chain Performance Inventory Turnover =

Example of Measuring Internal Supply-Chain Performance Suppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million. This company is used to having any inventory turn ratio of 10. What is this year’s Inventory Turnover ratio? What does it mean?

Example of Measuring Supply-Chain Performance (Continued) Inventory Turnover = Without knowing the industry average of turns for this company it is not possible to comment on how they are competitively doing in the industry.

Common practice is to measure within a function: Supply Chain Measures Common practice is to measure within a function: Supplier Plant Distribution Customer Center

Measure Across Supply Chain Nodes The correct method is to measure across a node:

Total Supply Chain Inventory Sum of inventory on hand at each node of the supply chain Supplier, Manufacturer, Distributor, Retailer Measurement Timing: Weekly data collection

Bullwhip Effect The magnification of variability in orders in the supply-chain.

What is the Bullwhip Effect?

The Bullwhip Effect – Cont’d

Causes of the Bullwhip Effect Price fluctuations Periodic order policies Rational/shortage gaming Production schedules

What is Outsourcing? Defined

Reasons to Outsource Organizationally-driven - Improvement-driven - Financially-driven - Revenue-driven - Cost-driven - Employee-driven -

When outsourcing (or whenever working with suppliers) Confrontation Low-Bid Traditional Partnership

Outsourcing Under what conditions would you not want to outsource?

Logistics The process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirement.

Consumer Supply Chain Logistics Reverse Logistics Supplier Manufacturer Supplier’s Supplier Wholesaler/ Distributor Consumer Retailer

Value Density Defined Value density: the value of an item per pound of weight. It is used as an important measure when deciding where items should be stocked geographically and how they should be shipped.

Mass Customization Defined Mass customization is a term used to describe the ability of a company to deliver highly customized products and services to different customers.