1 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning SUPPLY CHAIN DESIGN CHAPTER 9 DAVID A. COLLIER AND JAMES R. EVANS OM

22 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning LO1 Explain the concept of supply chain management. LO2 Describe the key issues in designing supply chains. LO3 Explain important factors and decisions in locating facilities. LO4 Describe the role of transportation, supplier evaluation, technology, and inventory in supply chain management. l e a r n i n g o u t c o m e s Chapter 9 Learning Outcomes

33 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Supply Chain Purpose: The basic purpose of a supply chain is to coordinate the flow of materials, services, and information along the elements of the supply chain to maximize customer value. Chapter 9 Supply Chain Design

44 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Three Views of Value/Supply Chains: Input/Output View (Exhibit 2.1) Pre- and Post-Services View (Exhibit 2.3) Typical Goods-Producing Supply Chain Structure (Exhibit 9.1) Chapter 9 Supply Chain Design

55 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Exhibit 2.1 The Value Chain – Input/Output View

66 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Exhibit 2.3 Pre- and Postservice View of the Value Chain

77 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Exhibit 9.1 Typical Goods-Producing Supply Chain Structure

88 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Understanding Supply Chains Supply chain management is the management of all activities that facilitate the fulfillment of a customer order for a manufactured good to achieve satisfied customers at a reasonable cost. Chapter 9 Supply Chain Design

99 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning The Supply Chain Operations Reference (SCOR) Model is a framework for understanding the scope of SCM based on five basic functions: 1.Plan: developing a strategy that balances resources with requirements. 2.Source: procuring goods and services to meet planned or actual demand. 3.Make: transforming goods and services to a finished state to meet demand. 4.Deliver: managing orders, transportation, and distribution to provide the goods and services. 5.Return: customer returns, maintenance, dealing with excess goods. Chapter 9 Supply Chain Design

10 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Designing the Supply Chain A contract manufacturer is a firm that specializes in certain types of goods-producing activities, such as customized design, manufacturing, assembly, and packaging, and works under contract for end users. Some of the major global contract manufacturers are Flextronics International Ltd., Solectron, Jabil Circuit, Hon Hai Precision Industrial, Celestica Inc., and Sanmina-SCI Corporation. Chapter 9 Supply Chain Design

11 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Designing the Supply Chain Efficient supply chains are designed for efficiency and low cost by minimizing inventory and maximizing efficiencies in process flow. Responsive supply chains focus on flexibility and responsive service and are able to react quickly to changing market demand and requirements. Chapter 9 Supply Chain Design

12 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Designing the Supply Chain A push system produces goods in advance of customer demand using a forecast of sales and moves them through supply chain to points of sale where they are stored as finished goods inventory. A pull system produces only what is needed at upstream stages in the supply chain in response to customer demand signals from downstream stages. Chapter 9 Supply Chain Design

13 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Designing the Supply Chain Postponement is the process of delaying product customization until the product is closer to the customer at the end of the supply chain. An example is a manufacturer of dishwashers that would manufacture the dishwasher without the door and maintain inventories of doors at the distribution centers. When orders arrive, the doors can be attached quickly and the unit can be shipped. This would reduce inventory requirements. Chapter 9 Supply Chain Design

14 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Multisite management is the process of managing geographically dispersed service- providing facilities. –McDonald's Corporation has over 30,000 stores in 121 countries. –Bank of America has over 16,000 ATMs and 5,700 branch banks in the United States. –Federal Express operates over one million drop-off mailboxes in 215 countries. Supply chains are vital to the operation of multisite management organizations. Chapter 9 Supply Chain Design

15 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Understanding and Measuring Supply Chain Performance Supply chain metrics balance customer requirements and internal supply chain efficiency. Delivery reliability is often measured by perfect order fulfillment. Responsiveness is often measured by order fulfillment lead time or perfect delivery fulfillment. Customer-related focus on the ability of the supply chain to meet customer wants and needs. Chapter 9 Supply Chain Design

16 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning The bullwhip effect results from order amplification in the supply chain: a phenomenon that occurs when each member of a supply chain “orders up” to buffer its own inventory. Many firms counteract this phenomenon by modifying the supply chain infrastructure and operational processes. Chapter 9 Supply Chain Design

17 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Location Decisions in Supply Chains Location decisions can have a profound effect on supply chain performance and a firms’ competitive advantage. The type of facility and its location affect the supply chain structure. Location decisions in supply and value chains are based on both: economic (facility costs, operating costs, and transportation costs) and non-economic (labor availability, legal and political factors, community environment) factors. Chapter 9 Supply Chain Design

18 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Location Decisions in Supply Chains Four basic decisions: global (nation) location regional location community location local site location Chapter 9 Supply Chain Design

19 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Center of Gravity Method The center of gravity method determines the X and Y coordinates (location) for a single facility. Takes into account locations, demand, and transportation costs to arrive at the best location. Chapter 9 Supply Chain Design

20 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Other Issues in Supply Chain Management Selecting Transportation Services Services include rail, motor, air, water, and pipeline. Critical factors include speed, accessibility, cost, and capability. Chapter 9 Supply Chain Design

21 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Supplier Evaluation Many companies segment suppliers based on their importance to the business and manage them accordingly. Texas Instruments measures suppliers’ quality performance by parts per million defective, on-time deliveries, and cost of ownership. Chapter 9 Supply Chain Design

22 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Technology Selecting the appropriate technology is critical for both planning and design of supply chains, as well as execution. Electronic data interchange and Internet links streamline information flow between customers and suppliers and increase the velocity of supply chains. Chapter 9 Supply Chain Design

23 OM, Ch. 9 Supply Chain Design ©2009 South-Western, a part of Cengage Learning Inventory Management An efficient distribution system allows a company to operate with lower inventory levels, which reduces costs and provides high levels of service to customers. Vendor managed inventory (VMI) is becoming a popular concept where the vendor monitors and manages the inventory for the customer. Chapter 9 Supply Chain Design