2. The objective is to build a chain of suppliers that focuses on maximizing value to the ultimate customer

3. Supply chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and final products, and deliver them through a distribution system Competition is no longer between companies; it is between supply chains

4. 1.Transportation vendors 2.Credit and cash transfers 3.Suppliers 4.Distributors 5.Accounts payable and receivable 6.Warehousing and inventory 7.Order fulfillment 8.Sharing customer, forecasting, and production information Important activities include determining

5. © 2011 Pearson Education, Inc. publishing as Prentice Hall  Largest publicly traded casual dining company in the world  Serves over 400 million meals annually in more than 1,800 restaurants in the US and Canada  Annual sales of $6.7 billion  Operations is the strategy EXAMPLE.................

6. © 2011 Pearson Education, Inc. publishing as Prentice Hall  Sources food from five continents and thousands of suppliers  Four distinct supply chains  Over $1.5 billion spent annually in supply chains  Competitive advantage achieved through superior supply chain

7. Low-Cost Strategy Response Strategy Differentiation Strategy Supplier’s goal Supply demand at lowest possible cost (e.g., Emerson Electric, Taco Bell) Respond quickly to changing requirements and demand to minimize stockouts (e.g., Dell Computers) Share market research; jointly develop products and options (e.g., Benetton) Primary selection criteria Select primarily for cost Select primarily for capacity, speed, and flexibility Select primarily for product development skills Table 11.1

8. Low-Cost Strategy Response Strategy Differentiation Strategy Process charact- eristics Maintain high average utilization Invest in excess capacity and flexible processes Modular processes that lend themselves to mass customization Inventory charact- eristics Minimize inventory throughout the chain to hold down cost Develop responsive system with buffer stocks positioned to ensure supply Minimize inventory in the chain to avoid obsolescence Table 11.1

9. Low-Cost Strategy Response Strategy Differentiation Strategy Lead-time charact- eristics Shorten lead time as long as it does not increase costs Invest aggressively to reduce production lead time Invest aggressively to reduce development lead time Product- design charact- eristics Maximize performance and minimize costs Use product designs that lead to low setup time and rapid production ramp-up Use modular design to postpone product differentiation as long as possible Table 11.1

10.  More reliance on supply chains means more risk  Fewer suppliers increase dependence  Compounded by globalization and logistical complexity  Vendor reliability and quality risks  Political and currency risks

11.  Choice between internal production and external sources

12.  Transfers traditional internal activities and resources of a firm to outside vendors  Utilizes the efficiency that comes with specialization  Firms outsource information technology, accounting, legal, logistics, and production

13.  Mutual agreement on goals  Trust  Compatible organizational cultures There are significant management issues in controlling a supply chain involving many independent organizations

14.  Local optimization  Local optimization - focusing on local profit or cost minimization based on limited knowledge  Incentives (sales incentives, quantity discounts, quotas, and promotions)  Incentives (sales incentives, quantity discounts, quotas, and promotions) - push merchandise prior to sale  Large lots  Large lots - low unit cost but do not reflect sales  Bullwhip effect  Bullwhip effect - stable demand becomes lumpy orders through the supply chain

15.  Accurate “pull” data  Lot size reduction  Single stage control of replenishment  Vendor managed inventory (VMI)

16.  Collaborative planning, forecasting, and replenishment (CPFR)  Blanket orders  Standardization

17.  Postponement  Drop shipping and special packaging  Pass-through facility  Channel assembly

18.  Vendor evaluation  Critical decision  Find potential vendors  Determine the likelihood of them becoming good suppliers  Vendor Development  Training  Engineering and production help  Establish policies and procedures

19. CriteriaWeights Scores (1-5) Weight x Score Engineering/research/innovation skills.2051.0 Production process capability (flexibility/technical assistance).154.6 Distribution/delivery capability.054.2 Quality systems and performance.102.2 Facilities/location.052.1 Financial and managerial strength (stability and cost structure).154.6 Information systems capability (e- procurement, ERP).102.2 Integrity (environmental compliance/ ethics).2051.0 Total1.003.9

20.  Negotiations  Cost-Based Price Model  Cost-Based Price Model - supplier opens books to purchaser  Market-Based Price Model  Market-Based Price Model - price based on published, auction, or indexed price  Competitive Bidding  Competitive Bidding - used for infrequent purchases but may make establishing long-term relationships difficult

21.  Objective is to obtain efficient operations through the integration of all material acquisition, movement, and storage activities  It is a frequent candidate for outsourcing  Allows competitive advantage to be gained through reduced costs and improved customer service

22.  Trucking  Moves the vast majority of manufactured goods  Chief advantage is flexibility  Railroads  Capable of carrying large loads  Little flexibility though containers and piggybacking have helped with this

23.  Airfreight  Fast and flexible for light loads  Typically expensive

24.  Waterways  Typically used for bulky, low- value cargo  Used when shipping cost is more important than speed

25.  Pipelines  Used for transporting oil, gas, and other chemical products

26.  Outsourcing logistics can reduce costs and improve delivery reliability and speed  Coordinate supplier inventory with delivery services  May provide warehousing, assembly, testing, shipping, customs

27.  Product in transit is a form of inventory and has a carrying cost  Faster shipping is generally more expensive than slower shipping  We can evaluate the two costs to better understand the trade-off

28.  Borders are becoming more open in the U.S. and around the world  Monitoring and controlling stock moving through supply chains is more important than ever  New technologies are being developed to allow close monitoring of location, storage conditions, and movement

29. Table 11.6 Typical Firms Benchmark Firms Lead time (weeks)158 Time spent placing an order42 minutes15 minutes Percentage of late deliveries33%2% Percentage of rejected material1.5%.0001% Number of shortages per year4004

30.  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%

31. Table 11.7 Inventory as a % of Total Assets(with exceptional performance) Manufacturing15%(Toyota 5%) Wholesale34%(Coca-Cola 2.9%) Restaurants2.9%(McDonald’s.05%) Retail27%(Home Depot 25.7%)

32.  Inventory turnover Inventory turnover = Cost of goods sold Inventory investment

33. Table 11.8 Examples of Annual Inventory Turnover Food, Beverage, RetailManufacturing Anheuser Busch15Dell Computer90 Coca-Cola14Johnson Controls22 Home Depot5Toyota (overall)13 McDonald’s112Nissan (assembly)150

34.  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

35.  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

36.  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 Weeks of supply = Inventory investment Average weekly cost of goods sold = 1.69 /.273 = 6.19 weeks Average weekly cost of goods sold = $14.2 / 52 = $.273

37.  Processes, metrics and best practices Plan: Demand/Supply planning and Management Source: Identify, select, manage, and assess sources Make: Manage production execution, testing and packaging Deliver: Invoice, warehouse, transport and install Return: Raw materialReturn: Finished goods Figure 11.3

38.  MRP  DRP  ERP

39. For any product for which a schedule can be established, dependent demand techniques should be used

40.  The demand for one item is related to the demand for another item  Given a quantity for the end item, the demand for all parts and components can be calculated  In general, used whenever a schedule can be established for an item  MRP is the common technique

41. 1.Master production schedule 2.Specifications or bill of material 3.Inventory availability 4.Purchase orders outstanding 5.Lead times Effective use of dependent demand inventory models requires the following

42. Figure 14.5 Output Reports MRP by period report MRP by date report Planned order report Purchase advice Exception reports Order early or late or not needed Order quantity too small or too large Data Files Purchasing data BOM Lead times (Item master file) Inventory data Master production schedule Material requirement planning programs (computer and software)

43.  Some services or service items are directly linked to demand for other services  These can be treated as dependent demand services or items  Restaurants  Hospitals  Hotels

44. Uncooked linguini #30004 Sauce #30006 Veal #30005 Chef; Work Center #1 Helper one; Work Center #2 Asst. Chef; Work Center #3 Cooked linguini #20002 Spinach #20004 Prepared veal and sauce #20003 (a) PRODUCT STRUCTURE TREE Veal picante #10001 Figure 14.10

45. (b) BILL OF MATERIALS Part NumberDescriptionQuantity Unit of Measure Unit cost 10001Veal picante1Serving— 20002Cooked linguini1Serving— 20003Prepared veal and sauce1Serving— 20004Spinach0.1Bag0.94 30004Uncooked linguini0.5Pound— 30005Veal1Serving2.15 30006Sauce1Serving0.80

46. (c) BILL OF LABOR FOR VEAL PICANTE LaborHours Work CenterOperationLabor TypeSetup TimeRun Time 1Assemble dishChef.0069.0041 2Cook linguiniHelper one.0005.0022 3Cook veal and sauce Assistant Chef.0125.0500

47. Using dependent demand techniques through the supply chain  Expected demand or sales forecasts become gross requirements  Minimum levels of inventory to meet customer service levels  Accurate lead times  Definition of the distribution structure

48.  An extension of the MRP system to tie in customers and suppliers  Allows automation and integration of many business processes  Shares common data bases and business practices  Produces information in real time  Coordinates business from supplier evaluation to customer invoicing

49.  ERP modules include  Basic MRP  Finance  Human resources  Supply chain management (SCM)  Customer relationship management (CRM)

50. Figure 14.11

51. Customer Relationship Management Invoicing Shipping Distributors, retailers, and end users Sales Order (order entry, product configuration, sales management)

52. Table 13.6 Bills of Material Work Orders Purchasing and Lead Times Routings and Lead Times Master Production Schedule Inventory Management Figure 14.11 MRP

53. Figure 14.11 Supply Chain Management Vendor Communication (schedules, EDI, advanced shipping notice, e-commerce, etc.)

54. Figure 14.11 Table 13.6 Finance/ Accounting General Ledger Accounts Receivable Payroll Accounts Payable

55.  ERP can be highly customized to meet specific business requirements  Enterprise application integration software (EAI) allows ERP systems to be integrated with  Warehouse management  Logistics  Electronic catalogs  Quality management

56.  ERP systems have the potential to  Reduce transaction costs  Increase the speed and accuracy of information  Facilitates a strategic emphasis on JIT systems and integration

57. Figure 14.12

58. 1.Provides integration of the supply chain, production, and administration 2.Creates commonality of databases 3.Can incorporate improved best processes 4.Increases communication and collaboration between business units and sites 5.Has an off-the-shelf software database 6.May provide a strategic advantage

59. 1.Is very expensive to purchase and even more so to customize 2.Implementation may require major changes in the company and its processes 3.Is so complex that many companies cannot adjust to it 4.Involves an ongoing, possibly never completed, process for implementation 5.Expertise is limited with ongoing staffing problems

60.  ERP systems have been developed for health care, government, retail stores, hotels, and financial services  Also called efficient consumer response (ECR) systems  Objective is to tie sales to buying, inventory, logistics, and production

61. 15 TH APRIL 2015

62.  Benefits of Layout strategies  How many different layouts do you encounter and what are the differences in the sub- departments?  Does the layout consider a visual workplace?  Review perceived advantages for location strategy  Job design & conditions in work area – ambience, noise levels, temperature and any mitigation activities.  Kind of process in use – continuous, work cell etc  Is quality assurance especially at source evident?

63. 17 TH APRIL 2015