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9-supply Chain Design. OPerations Management

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OPERATIONS MANAGEMENT

OPERATIONS MANAGEMENT

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  • 1. BBA 6TH M2 1
  • 2. BBA 6TH M2 2
  • 3. Introduction BBA 6TH M2 4 A supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials, and components into a finished product that is delivered to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable.
  • 4. BBA 6TH M2 Supply Chain Design Totalcosts Supply chain performance New supply chain efficiency curve with changes in design and execution Inefficient supply chain operations Area of improved operations Figure 9.1 – Supply Chain Efficiency Curve Improve perform- ance Reduce costs 5
  • 5. BBA 6TH M2 Supply Chain Design  The goal is to reduce costs as well increase performance.  Supply chains must be managed to coordinate the inputs with the outputs in a firm to achieve the appropriate competitive priorities of the firm’s enterprise processes.  The Internet offers firms an alternative to traditional methods for managing the supply chain.  A supply chain strategy is essential for service as well as manufacturing firms. 6
  • 6. BBA 6TH M2 Supply Chains  Every firm or organization is a member of some supply chain  Services  Provide support for the essential elements of various services the firm delivers  Manufacturing  Control inventory by managing the flow of materials  Suppliers identified by position in supply chain – “tiers”  Suppliers and customers 7
  • 7. BBA 6TH M2 Home customers Commercial customers Flowers-on-Demand florist Packaging Flowers: Local/International Arrangement materials FedEx delivery service Local delivery service Internet service Maintenance services Supply Chains Figure 9.2 – Supply Chain for a Florist 8
  • 8. BBA 6TH M2 East Coast West Coast East Europe West Europe Retail USA Ireland Distribution centers Manufacturer Ireland Assembly Germany Mexico USATier 1 Major subassemblies Germany Mexico USA ChinaTier 2 Components Supply Chains Poland USA Canada Australia MalaysiaTier 3 Raw materials Figure 9.2 – Supply Chain for a Manufacturing Firm 9
  • 9. BBA 6TH M2 Inventory and Supply Chains Scrap flow Inventory level Output flow of materials Input flow of materials Figure 9.4 – Creation of Inventory 10
  • 10. BBA 6TH M2 Inventory and Supply Chains  Balance the advantages and disadvantages  Pressures for small inventories Inventory holding cost Cost of capital Storage and handling costs Taxes, insurance, and shrinkage 11
  • 11. BBA 6TH M2 Inventory and Supply Chains  Pressures for large inventories Customer service Ordering cost Setup cost Labor and equipment utilization Transportation cost Payments to suppliers 12
  • 12.  Three aggregate categories  Raw materials  Work-in-process  Finished goods Types of Inventory  Classified by how it is created  Cycle inventory  Safety stock inventory  Anticipation inventory  Pipeline inventory BBA 6TH M2 13
  • 13. BBA 6TH M2 Types of Inventory Figure 9.5 – Inventory at Successive Stocking Points 14
  • 14. BBA 6TH M2 Cycle Inventory  Lot sizing principles 1. The lot size, Q, varies directly with the elapsed time (or cycle) between orders. 2. The longer the time between orders for a given item, the greater the cycle inventory must be. Average cycle inventory = = Q + 0 2 Q 2 15
  • 15. BBA 6TH M2 Safety Stock and Anticipation Inventory  Safety Stock inventory - Protects against uncertainties in demand, lead time, and supply changes  Anticipation inventory - Used to absorb uneven rates of demand or supply - Predictable, seasonal demand patterns lend themselves well to the use of anticipation inventory 16
  • 16. BBA 6TH M2 Estimating Inventory Levels 1. Enter the average lot size, average demand during a period, and the number of periods of lead time: 2. To compute cycle inventory, simply divide average lot size by 2. To compute pipeline inventory, multiply average demand by lead time Cycle inventory Pipeline inventory Average lot size Average demand Lead time 350 70 2 175 140 17
  • 17. BBA 6TH M2 Inventory Reduction Tactics  Cycle inventory Reduce the lot size Reduce ordering and setup costs and allow Q to be reduced Increase repeatability to eliminate the need for changeovers  Safety stock inventory  Place orders closer to the time when they must be received  Improve demand forecasts  Cut lead times  Reduce supply chain uncertainty  Rely more on equipment and labor buffers 18
  • 18. Inventory Reduction Tactics  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 Q in those cases where the lead time depends on the lot size BBA 6TH M2 19
  • 19. BBA 6TH M2 Inventory Placement  Where to locate an inventory of finished goods  Use of distribution centers (DCs)  Centralized placement  Inventory pooling  Forward placement 20
  • 20. BBA 6TH M2  Inventory measures Measures of Supply Chain Performance Average aggregate inventory value = + Value of each unit of item B Number of units of item B typically on hand Value of each unit of item A Number of units of item A typically on hand Weeks of supply = Average aggregate inventory value Weekly sales (at cost) Inventory turnover = Annual sales (at cost) Average aggregate inventory value 21
  • 21. BBA 6TH M2  Financial measures Total revenue Cost of goods sold Operating expenses Cash flow Working capital Return on assets Measures of Supply Chain Performance22
  • 22. BBA 6TH M2 Return on assets (ROA) Increase ROA with higher net income and fewer total assets Total assets Achieve the same or better performance with fewer assets Working capital Reduce working capital by reducing inventory investment, lead times, and backlogs Fixed assets Reduce the number of warehouses through improved supply chain design Net income Improve profits with greater revenue and lower costs Measures of Supply Chain Performance Total revenue Increase sales through better customer service Cost of goods sold Reduce costs of transportation and purchased materials Operating expenses Reduce fixed expenses by reducing overhead associated with supply chain operations Net cash flows Improve positive cash flows by reducing lead times and backlogs Inventory Increase inventory turnover Figure 9.8 – How Supply Chain Decisions Can Affect ROA 23
  • 23. BBA 6TH M2 Mass Customization  Competitive advantages Managing customer relationships Eliminate finished goods inventory Increased perceived value of services or products  Supply chain design for mass customization  Assemble-to-order strategy  Modular design  Postponement 24
  • 24. BBA 6TH M2 Outsourcing Processes  Make-or-buy decision  Vertical integration Backward integration Forward integration  Outsourcing Offshoring Benefits to outsourcing Pitfalls to outsourcing 25
  • 25. BBA 6TH M2  Efficient supply chains  Responsive supply chains  Design of efficient and responsive supply chains Strategic Implications26
  • 26. BBA 6TH M2 Strategic Implications TABLE 9.1 | ENVIRONMENTS BEST SUITED FOR EFFICIENT AND RESPONSIVE | SUPPLY CHAINS Factor Efficient Supply Chains Responsive Supply Chains Demand Predictable, low forecast errors Unpredictable, high forecast errors Competitive priorities Low cost, consistent quality, on-time delivery Development speed, fast delivery times, customization, volume flexibility, variety, top quality New-service/product introduction Infrequent Frequent Contribution margins Low High Product variety Low High 27
  • 27. BBA 6TH M2 Strategic Implications TABLE 9.2 | DESIGN FEATURES FOR EFFICIENT AND RESPONSIVE SUPPLY CHAINS Factor Efficient Supply Chains Responsive Supply Chains Operation strategy Make-to-stock or standardized services or products; emphasize high volumes Assemble-to-order, make-to- order, or customized service or products; emphasize variety Capacity cushion Low High Inventory investment Low; enable high inventory turns As needed to enable fast delivery time Lead time Shorten, but do not increase costs Shorten aggressively Supplier selection Emphasize low prices, consistent quality, on-time delivery Emphasize fast delivery time, customization, variety, volume flexibility, top quality 28
  • 28. BBA 6TH M2 29
  • 29. BBA 6TH M2 30

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