1. OUTLINE
Questions?
Quiz results
Questions about the homework?
Review

2. Quiz Results

3. Topics for Midterm
Excel
Costs
Supply Chain Strategy
Performance measurements
Distribution types
Inventory
Obstacles
Optimization of location and capacity
Risk

4. Excel
Excel Orientation
VBA
Useful functions
Lookup, random, function information, special copies
Solver
Add ins, Data Analysis

5. Adding up the costs (example)
A plant generates 270,000 earned hours (established by standards for each of the products produced). 85% efficiency is assumed.
The cost of an hour of labor, including benefits, is $30
Indirect labor totals $30M
Materials cost $70M
Material overhead costs are $4M
What is the cost of a product containing 0.8 hours of standard labor and $20 of material?
We first calculate the total labor rate as (30,000, ,000*30/0.85)/270,000=$146.40/hour

6. Adding up the costs (example continued)
Material overhead = $4M/$70M= 5.7%
Direct and indirect labor =0.8* $146.40=$117.12
Material =$20.00
Material Overhead= 0.057*20 =$1.14
Total Cost =$138.26
We can separate the direct and indirect labor into:
Direct labor = 0.8*30 =$24
Indirect =$93.12
And you can see why everyone attacks overhead
If you are independent, the profit would add another 10% or so. It is very dependent on the industry and level of investment

7. What is a supply chain?
All the activities required to fill a customer’s order
Objective – Maximize the overall value that is generated

8. Phases
Design
Decide on structure
Planning
Define operating policies for short term operations
Annual forecast
Operation
Implement operating policies

9. Process View
Cycles
Customer
Retailer
Distributor
Manufacturer
Supplier
Push/pull
Push : initiated by anticipation of orders
Pull : initiated by a customer order

10. Strategies
Employing resources to achieve objectives
Broad in scope
Long term
Coordination among all units
Marketing
Design Engineering
Manufacturing
Distribution
Sales
Field support

11. Performance - Introduction
Competitive Strategy – set of customers’ needs that a company seeks to satisfy through its products and services
All functions play a role and have their own strategies
Supply chain and competitive strategies must fit together to form a coordinated strategy 11

12. Performance – Achieving competitive fit
Competitive fit is achieved in three steps:
By understanding the uncertainties in customers’ needs and the supply chain
By understanding the supply chain’s capabilities
By matching the strategies 12

13. Performance - Uncertainties
Quantity
Response time
Variety
Service level
Price
Rate of innovation 13

14. Performance - Responsiveness
Wide ranges of quantities
Short lead times
Large variety
Innovation
Service level
Supply uncertainty
Responsiveness comes at a cost 14

15. Performance – Product Life Cycle
Demand – uncertain to relatively certain
Margins from high to low
Availability essential early to capture the market
Price – unimportant to important 15

16. Definitions Facilities – places where product is Stored Assembled
Fabricated
Inventory –
Raw materials
Work in process (WIP)
Finished goods (FG)
Transportation
Spares
Facilities – where services are provided

17. Definitions - continued
Transportation – moving inventory from point to point
Ground
Road
Rail
Pipe line
Barge
Air
Ship
Information
Data
Analysis

18. Definitions - continued
Transportation – moving inventory from point to point
Ground
Road
Rail
Pipe line
Barge
Air
Ship
Information
Data
Analysis

19. Framework

20. Facilities
Role in the chain – the where of the supply chain
Role in the competitive strategy – Location, location, location
Components of decisions
Location
Capacity
Operational methods
Warehousing methods
Tradeoff: Responsiveness vs. Efficiency

21. Inventory
Role in the supply chain – alleviate mismatch between supply and demand
Increase demand that can be satisfied
Exploit economies of scale
Definitions:
Material flow (Flow time) – elapsed time between material entering the supply chain and exiting
Throughput – rate at which material moves through the chain
Little’s law: Inventory = Throughput x Flow time
Flow time is also called cycle time

22. Inventory - continued
Role in competitive strategy: responsiveness
Components of inventory decisions:
Cycle inventory – satisfies demand between replenishments
Safety Stock – protects against variations in demand
Seasonal Inventory – built up to counter demand that exceeds capacity
Sources – from whom to buy (or make)

23. Transportation
Role: move material
Role in competitive strategy: match required responsiveness
Components of decisions:
Mode (rail, truck, air, ship, pipeline, electronic)
Route and network selection
Sourcing
Who provides transportation services?

24. Information
Role: connects the members of the chain and supports daily operations
Role in strategy: most important underpinning
Components of decisions:
Push/pull
What to share
Forecasting and planning
Pricing
Enabling technologies: Software (EDI, ERP, SCM)

25. Obstacles
Increasing variety
Shorter life cycles
Demanding customers
Decreasing vertical integration
Globalization

26. Types of Chains
Internal
Often as complex as complete chains
Good place to start integrating
Need to educate people in the organization to understand their internal supply chains
External
Consider potential conflicts among prospective members
Find common goals
Each must think they will benefit

27. More on Information EDI Bar Coding and scanning
Data warehousing – separate from operational data
Internet
Started with DARPA (Defense Advanced Research Projects Agency)
Intranets
World Wide Web
Decision support systems
SQL, LP, Scheduling software
Definition ATP: Available to promise

28. Benefits of collaboration
Establishing contacts
Gaining Insight
Joint projects

29. Definitions
Benchmarking
Identifying, understanding and adapting outstanding practices from other organizations to improve performance

30. International Chains – what is different?
Greater geographic and time distances
Diversity of demand and supply conditions
Wage rates
Taxes
Incentives
Political climates
Exchange rates
Special laws

31. Cycle time
Definition – the total elapsed time required to complete a process (e.g. 4 years to get an engineering degree, one month to build an airplane)
Little’s Law: Cycle time = Work in process/Throughput
Causes of long cycle times:
Waiting
Old processes that don’t add value
Serial vs. parallel, external vs. internal
Repeated activities
Batching
Excessive controls

32. Measuring Performance
What should measuring performance accomplish?
Basis for understanding the system
Influence behavior in the system
Provide information about results
Provide information that will initiate actions to improve the system
Create accountability in individual operations
The concept of Supply Chain Management requires that overall performance be measured, but intermediate points must also be measured to insure accountability

33. Measuring Performance (continued)
Typical internal measures
% orders on time
Inventory turns
Cycle time
Costs/Goods sold
Aging of orders

34. Measuring Performance (continued)
Typical supply chain measurements
Cycle time
% orders on time (service level) or fill rate
Order aging
Comparisons to competitors (Bench marking)
Responsiveness to changes in demand
End items sold/Total costs
Market Share

35. Chapter 4 – Designing the distribution network in a Supply Chain
Move and store product between stages
The structure of the network influences:
Response time
Variety of products
Availability of products
Customers’ experience
Visibility of orders
Returnability

36. Some basic relationships in a supply network
Lower response times require more facilities
Inventory costs increase with the number of facilities
Transportation costs decrease with the number of facilities
Total logistics costs vary parabolically with the number of facilities – there is an optimum number of facilities

37. Major types of distribution networks
Definition: Inventory Turns = Annual Sales/ average inventory
Manufacturing Storage with direct shipping (drop)
Manufacturing Storage with direct shipping and in transit merge
Distributor Storage with carrier delivery
Distributor Storage with Last Mile delivery (not carrier)
Manufacturer/Distributor Storage with customer pickup
Retail Storage with customer pickup

38. Models
Capacitated Plant Location
Gravity location model
Allocation of demand

39. Capacitated Plant Location Model

40. Risk
Tree diagram
Present value
Simulation