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Supply Chain Management Network process.ppt
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- 2. Outline • Today – Homework1 due – Chapter 4 – Introduction to Excel Solver? • Next week – Chapter 5
- 3. Designing a SupplyChain Network In designing a supply chain, we need to consider how all supply chain drivers should be used together to support the competitive strategy of a company and maximize supply chain profits Corporate Strategy Competitive Strategy Supply Chain Strategy Responsiveness Efficiency Facilities Inventory Transportation Information Sourcing Pricing
- 4. Factors Influencing Distribution NetworkDesign • Performance of a distribution network should be evaluated along two dimensions – Customer needs that are met (customer service) • Response time (Time it takes for a customer to receive an order) • Product variety (Number of different products that are offered) • Product availability (Probability of having a product in stock) • Customer experience (Ease of placing and receiving orders) • Order visibility (Ability of customers to track their orders) • Returnability (Ease of returning unsatisfactory merchandise) – Cost of meeting customer needs (supply chain cost) • Inventory (All raw materials, WIP, and finished goods) • Transportation (Moving inventory from point to point) • Facility & handling (Locations where product is stored, assembled, or fabricated) • Information (Data and analysis of all drivers in a supply chain)
- 5. Design Options Fora Distribution Network • Two key decisions when designing a distribution network – Will the product be delivered to the customer location or picked up from a preordained site? – Will product flow through an intermediary?
- 6. Retail Storage withCustomer Pickup • Example: Retail stores such as Wal-Mart and JCPenney • Customers pick up product from retailers – Low transportation cost – High facility cost – Relative easy returnability – Increased inventory cost • No order tracking necessary – If the product is available at the retailer, the consumer buys. Otherwise goes to another retailer • Effective for fast moving items Retailer Consumers Retailer Retailer Distributor Warehouse Manufacturers Distributor Warehouse
- 7. Manufacturer Storage withDirect Shipping (Drop Shipping) • Example: eBags • Products are shipped directly to the consumer from the manufacturer • Retailer is an information collector: – Passes orders to the manufacturers – It does not hold product inventory • Inventory is centralized at manufacturer • Drop shipping offers the manufacturer the opportunity to postpone customization • Effective for high value, large variety, low demand products • High transportation cost Retailer Manufacturers Consumers
- 8. Manufacturer Storage withDirect Shipping and In-Transit Merge • Example: – Furniture retailers merge couches and coffee tables produced by different manufacturers – Dell merges a Dell PC with a Sony flat screen • Shipments from multiple manufactures are merged before making a single delivery to the consumer • Shipments to Mergers are larger so economies of scale is achieved • Mergers increase facility costs • Response time may go up Retailer Mergers Consumers Manufacturers
- 9. Distributor Storage withCarrier Delivery • Example: Amazon • Inventory is held at a warehouse which ships to customer by carriers • With respect to direct shipping – Inventory aggregation is less – Higher inventory costs – Facility costs are higher – Less information to track • Warehouses are physically closer to consumers which leads to – Faster response time – Lower transportation cost • Not effective for slow moving items Distributor Warehouse Manufacturers Consumers Distributor Warehouse
- 10. Distributor Storage withLast Mile Delivery • Example: Milk delivery, Grocery delivery (Peapod, Albertsons), Denver Mattress • Warehouse delivers to customers instead of carrier – Warehouses are located closer to consumers – Transportation costs go up because warehouses are not as effective as package carriers in aggregating loads to have economies of scale • Warehouse may need to own a trucking fleet so the physical infrastructure costs are higher. – Products must be flowing fast to justify the infrastructure – Processing cost are high Distributor Warehouse Manufacturers Consumers Distributor Warehouse
- 11. Manufacturer or DistributorStorage With Customer Pickup • Example: 7dream.com • Customers come to pick up sites (warehouse, retailer) to get the products – If consumers are willing to pick up the products, let them do so. Otherwise, they would be charged for the delivery costs • Order tracking is crucial. Consumers must be alerted when their order is ready for pick up. Once a consumer arrives at the pick up site, the products must be quickly located. • Significant amount of information is required • Increased handling cost Distributor Warehouse Manufacturers Consumers Distributor Warehouse
- 12. Comparing Distribution Networks Retail storagewith customer pickup Manufacturer storage with direct shipping Manufacturer storage with in transit merge Distributor storage with package delivery Distributor storage with last mile delivery Manufacturer storage with customer pickup Reponse time 1 4 4 3 2 4 Product variety 4 1 1 2 3 1 Product availability 4 1 1 2 3 1 Cusomter experience 1-5 4 3 2 1 5 Time to market 4 1 1 2 3 1 Order visibility 1 5 4 3 2 6 Returnability 1 5 5 4 3 2 Inventory 4 1 1 2 3 1 Transportation 1 4 3 2 5 1 Facility and handling 6 1 2 3 4 5 Information 1 4 4 3 2 5 1 = strongest performance 6 = weakest performance
- 13. Design Options Fora Distribution Network 1. Retail Storage with Consumer Pickup 2. Manufacturer Storage with Direct Shipping 3. Manufacturer Storage with Direct Shipping and In-Transit Merge 4. Distributor Storage with Carrier Delivery 5. Distributor Storage with Last Mile Delivery 6. Manufacturer or Distributor Storage with Consumer Pickup
- 14. Design Options Fora Distribution Network Retailer Manufacturers Consumers Retailer Mergers Consumers Manufacturers Distributor Warehouse Manufacturers Distributor Warehouse Distributor Warehouse Manufacturers Distributor Warehouse Distributor Warehouse Manufacturers Distributor Warehouse Retailer Consumers Retailer Retailer Distributor Warehouse Manufacturers Distributor Warehouse
- 15. From brick-and-mortar toclick-and- mortar Is e-business likely to be more beneficial in the early part or the mature part of a product’s life cycle? In the future, do you see the number of distributors decreasing, increasing, or staying about the same? Why should an e-business such as Amazon.com build more warehouses as its sales volume grows? What has been the impact of e-business on supply chain cost? What has been the impact of e-business on customer service?
- 16. Dell: Network Design(Europe) A successful distribution network satisfies customer needs at the lowest possible cost
- 17. Dell: Network Design AsCannon noted, the Dell build-to-order and “do it all ourselves” model served the company well for almost 20 years, but “the environment has changed.” Just a few years ago, Dell was positioned as the supply chain place where most of us needed to be: almost no finished goods or parts inventory; negative cash-to-cash cycle (paid by customers before paying suppliers); “have it your way” flexibility/the epitome of mass customization; sophisticated demand management techniques to drive buyers to what was most profitable or available in terms of PC configurations; cut out the middleman. Now, it appears, Dell itself doesn’t want to be there. “Our supply chain needs to change dramatically,” Cannon said.
- 18. Dell: Network Design Dell’sapproach added a lot of complexity – and cost. He said, for example, that for many models, there were as many as 500,000 configuration options. Why do that? “Because we could,” Cannon said. “We had a very flexible supply chain that allowed us to offer that level of configuration choice.” That approach, in turn actually led to higher product costs in many cases. Here’s how. Base/entry models had to be built in a way that permitted all these add-ons to much higher end models. So, if/when customers configured their way up to a high-end unit, Dell made good money. But if a customer stayed with a basic offering, the company lost margin because the base unit versus the competition had extra costs to support the potential of high-end add-ons.
- 19. Dell: Network Design Dellhas said it believes it can save $3 billion annually from various measures, and Cannon said most of that will come out of these changes to the supply chain over the next 2-3 years. It had sales of $61 billion last year, so that’s about a 5% reduction in total costs. Dell to Migrate Manufacturing Operations from Ireland to Poland
- 20. Example: Dell NetworkDesign Decision $19 $23 $31
- 21. Example: Dell NetworkDesign Decision Romenia Poland Ireland France 23 19 31 Germany 9 15 11 Italy 23 21 40 Spain 29 26 40 United Kingdom 33 36 20 Romenia Poland Ireland Demand France 23 19 31 15,000.00 Germany 9 15 11 20,000.00 Italy 23 21 40 13,000.00 Spain 29 26 40 12,000.00 United Kingdom 33 36 20 19,000.00 Romenia Poland Ireland Demand France 23 19 31 15,000.00 Germany 9 15 11 20,000.00 Italy 23 21 40 13,000.00 Spain 29 26 40 12,000.00 United Kingdom 33 36 20 19,000.00 Capacity 80,000 80,000 80,000 Cost 18,000,000.00 $ 17,500,000.00 $ 24,500,000.00 $
- 22. What is anOptimization Problem • Generally, an optimization problem seeks a solution where decisions need to be made in a constrained or limited resource environment – Most supply chain optimization problems require matching demand and supply when one, the other, or both may be limited • An optimization problem comprises three major components – Decision variables – Constraints – Objective
- 23. Introduction to ExcelSolver • Installing Excel Solver – Goto Tools > Add-ins… – Select “Solver Add-in” and press OK • Opening Excel Solver – Goto Tools > Solver
- 24. Example: Profit MaximizationProblem • The Windsor Glass Company is planning to launch two new products. – 8 feet glass door with aluminum framing – 4x6 feet window with wood framing • Management of the company wants to determine what mixture of both products would be most profitable
- 25. Example: Profit MaximizationProblem Plant 1 (Aluminum frames) Plant 2 (Wood frames) Plant 3 (Glass and assembly) Windsor Glass Company 8 Feet Aluminum Frame Doors 1 hour 3 hours 2 hours Profits $3,000 Excess cap. 4 hours Excess cap. 12 hours Excess cap. 18 hours 2 hours $5,000 4x6 Wood Frame Windows
- 26. Windsor Glass CompanyModel • Inputs • Decision variables – X1 number of batches of doors produced – X2 number of batches of windows produced Production time per batch (hours) Plant 1 Plant 2 Plant 3 Profit per batch Doors 1 0 3 $3,000 Windows 0 2 2 $5,000 Available time (hours) 4 12 18
- 27. Windsor Glass CompanyModel • Objective function – Maximize 3000 X1 + 5000 X2 Production time per batch (hours) Plant 1 Plant 2 Plant 3 Profit per batch Doors 1 0 3 $3,000 Windows 0 2 2 $5,000 Available time (hours) 4 12 18
- 28. Windsor Glass CompanyModel • Constraints – Hours available in Plant 1 X1 4 – Hours available in Plant 2 2 X2 12 – Hours available in Plant 3 3 X1 + 2 X2 18 – Nonnegative production quantities X1 0, X2 0 Production time per batch (hours) Plant 1 Plant 2 Plant 3 Profit per batch Doors 1 0 3 $3,000 Windows 0 2 2 $5,000 Available time (hours) 4 12 18
- 29. Windsor Glass CompanyModel • Decision variables – X1 number of batches of doors produced – X2 number of batches of windows produced • Objective function – Maximize 3000 X1 + 5000 X2 • Constraints – X1 <= 4 (Available hours Plant 1) – 2 X2 <= 12 (Available hours Plant 2) – 3 X1 + 2 X2 <= 18 (Available hours Plant 3) – X1, X2 >= 0 (nonnegativity)
- 30. Windsor Glass CompanyModel • Objective function – Maximize 3000 X1 + 5000 X2 Objective function Maximize profit =SUMPRODUCT(E4:E5,H4:H5)
- 31. Windsor Glass CompanyModel • Constraints – X1 <= 4 (Available hours Plant 1) – 2 X2 <= 12 (Available hours Plant 2) – 3 X1 + 2 X2 <= 18 (Available hours Plant 3) – X1, X2 >= 0 (nonnegativity) • Constraints – 0 <= 4 - X1 (Available hours Plant 1) – 0 <= 12 - 2 X2 (Available hours Plant 2) – 0 <= 18 - 3 X1 - 2 X2 (Available hours Plant 3) – X1, X2 >= 0 (nonnegativity) Constraints Plant 1 Doors Windows Available time (hours) =B6-SUMPRODUCT(B4:B5,H4:H5)
- 32. Windsor Glass CompanyModel • Decision variables – X1 number of batches of doors produced – X2 number of batches of windows produced • Objective function – Maximize 3000 X1 + 5000 X2 • Constraints – 0 <= 4 - X1 (Available hours Plant 1) – 0 <= 12 - 2 X2 (Available hours Plant 2) – 0 <= 18 - 3 X1 - 2 X2 (Available hours Plant 3) – X1, X2 >= 0 (nonnegativity)
- 33. Windsor Glass CompanyModel using Excel Solver Objective function Decision variables Constraints
- 34. Windsor Glass CompanyModel using Excel Inputs Variables Production time per batch (hours) Plant 1 Plant 2 Plant 3 Profit per batch Doors 1 0 3 $3,000 Doors 2 Windows 0 2 2 $5,000 Windows 6 Available time (hours) 4 12 18 Constraints Plant 1 Plant 2 Plant 3 Profit per batch Doors Windows Available time (hours) 2 0 0 Objective function Maximize profit 36,000 $
Editor's Notes
- #4 Distribution network design options must therefore be compared according to their impact on customer service and the cost to provide this level of service
- #7 This model is also referred to as drop-shipping. Retailers carries no inventory. All inventory is at the manufacturer’s site. This is eBags model, which takes orders and arranges for the manufacturer’s to ship directly to the customers. Transportation cost is high because the average outbound distance to the end customer is large. Package carriers are used and are more expensive than TL or LTL. A good information infrastructure is needed. Response time tends to be large. eBags Nordstrom.com (for slow moving footwear) W.W. Grainer (for slow moving items)
- #15 Impact of e-business on customer service Response time to customers Longer for products that cannot be downloaded Product variety Easier to provide a larger product variety Product availability Aggregation of inventory allows for improved availability Customer experience Much broader reach Time to market Easier to introduce new products quickly Returnability Cost of reverse flows increases Impact of e-business on supply chain cost Inventory An e-business requires less inventory due to aggregation Postponement can lower inventory cost Facilities An e-business requires less facilities because of centralizing operations Reduced handling costs because fewer intermediaries are used Transportation Apart from digital products an e-business tends to have higher transportation cost (across the entire supply chain) Information Significant information infrastructure is needed