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Supply Chain Design

9

For Operations Management, 9ebyKrajewski/Ritzman/Malhotra 2010 Pearson Education

PowerPoint Slides

by Jeff Heyl

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Supply Chain Design

Totalcosts

Supply chain performance

New supply chainefficiency curve withchanges in designand execution

Inefficientsupply chainoperations

Area ofimproved

operations

Figure 9.1 Supply Chain Efficiency Curve

Improveperform-ance

Reduce costs

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Supply Chain Design

The goal is to reduce costs as well increaseperformance.

Supply chains must be managed to coordinate theinputs with the outputs in a firm to achieve the

appropriate competitive priorities of the firmsenterprise processes.

The Internet offers firms an alternative totraditional methods for managing the supplychain.

A supply chain strategy is essential for service aswell as manufacturing firms.

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Supply Chains

Every firm or organization is a member of somesupply chain

Services

Provide support for the essential elements of variousservices the firm delivers

Manufacturing

Control inventory by managing the flow of materials

Suppliers identified by position in supply chaintiers

Suppliers and customers

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Homecustomers

Commercialcustomers

Flowers-on-Demand florist

PackagingFlowers:

Local/InternationalArrangement

materials

FedEx deliveryservice

Local deliveryservice

Internetservice

Maintenanceservices

Supply Chains

Figure 9.2 Supply Chain for a Florist

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East Coast West Coast East Europe West Europe Retail

USA IrelandDistribution

centers

ManufacturerIreland

Assembly

Germany Mexico USATier 1Major

subassemblies

Germany Mexico USA ChinaTier 2 Components

Supply Chains

Poland USA Canada Australia MalaysiaTier 3 Rawmaterials

Figure 9.2 Supply Chain for a Manufacturing Firm

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Invento ry and Supply Chains

Scrap flow

Inventory level

Output flow of materials

Input flow of materials

Figure 9.4 Creation ofInventory

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Invento ry and Supply Chains

Balance the advantages anddisadvantages

Pressures for small inventories Inventory holding cost

Cost of capital

Storage and handling costs Taxes, insurance, and shrinkage

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Invento ry and Supply Chains

Pressures for large inventories

Customer service

Ordering cost

Setup cost

Labor and equipment utilization

Transportation cost

Payments to suppliers

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Three aggregate categories Raw materials

Work-in-process

Finished goods

Types of Invento ry

Classified by how it is created

Cycle inventory

Safety stock inventory Anticipation inventory

Pipeline inventory

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Types of Invento ry

Figure 9.5 Inventory at Successive Stocking Points

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Cyc le Invento ry

Lot sizing principles

1. The lot size, Q, varies directly with the elapsedtime (or cycle) between orders.

2. The longer the time between orders for agiven item, the greater the cycle inventorymust be.

Average cycle inventory = =Q+ 0

2

Q

2

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Safety Stock and Ant ic ipat ion

Inventory

Safety Stock inventory

- Protects against uncertainties indemand, lead time, and supply changes

Anticipation inventory

- Used to absorb uneven rates of demandor supply

- Predictable, seasonal demand patternslend themselves well to the use ofanticipation inventory

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Pipeline Invento ry

Pipeline inventory

Average demand during lead time = DL

Average demand per period = d

Number of periods in the items lead time = L

Pipeline inventory = DL = dL

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Invento ry Reduct ion Tact ics

Cycle inventory Reduce the lot size

Reduce ordering and setup costs and allow Qto bereduced

Increase repeatability to eliminate the need forchangeovers

Safety stock inventory

Place orders closer to the time when they must bereceived

Improve demand forecasts

Cut lead times

Reduce supply chain uncertainty

Rely more on equipment and labor buffers

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Invento ry Reduct ion Tact ics

Anticipation inventory Match demand rate with production rates

Add new products with different demand cycles

Provide off-season promotional campaigns

Offer seasonal pricing plans

Pipeline inventory

Reduce lead times

Find more responsive suppliers and select new carriers Change Qin those cases where the lead time depends on

the lot size

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Invento ry Placement

Where to locate an inventory of finishedgoods

Centralized placement

Inventory pooling

Forward placement