Chapter 8

Supply Chain Management

Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

Inventory at Different Stocking Points

Raw Materials
Required inputs to produce a good or service

Work-In-Process
Items partially through a process that are needed for a final product

Finished Goods
Items that have completed the transformation process
Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

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Inventory at Different Stocking Points

Raw materials

Work in process

Finished goods

Supplier Figure 8.1

Manufacturing plant

Distribution center Retailer

Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

8-3

Supply Chain Management

Synchronize a firms processes with those of its suppliers Coordination of key processes:
Order placement Order fulfillment Purchasing

The goal is to match the flow of:

Material Services Information

To Customer Demand
Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

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Customer

Customer

Customer

Customer

Supply Chain
Tier 1

Distribution center centre

Distribution center centre

Manufacturer

Tier 2

Tier 3

Figure 8.2

Legend

Supplier of services

Supplier of materials

Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

8-5

Supply Chain
Home customers Commercial customers Other electric utilities

Electric power utility

Electric transformers

Facility maintenance services

Janitorial services

Programming services

Electric energy backup power

Office supplies

Fuel supplies

Figure 8.3
Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

8-6

Integrated Supply Chain

Phase 1: Independent supply-chain entities Suppliers Purchasing Production Distribution Customers

Phase 2: Internal integration

Suppliers

Purchasing Production Distribution

Customers

Internal supply chain Materials management department

Phase 3: Supply-chain integration

Suppliers

Internal supply chain

Customers

Figure 8.4

Integrated supply chain

Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

8-7

Value Analysis
Primary Goals of Value Analysis
Reduce Cost Improve Product Performance

Typical Questions Addressed

Can the item be simplified? Can the item be redesigned for more efficient production? What is the items primary function?
Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

8-8

Supply-Chain Process Measures

Order Placement
Percent orders

Order Fulfillment
Percent of

Purchasing
Percent of

taken accurately Time to complete the orderplacement process Customer satisfaction with the orderplacement process

incomplete orders shipped Percent of orders shipped on time Time to fulfill the order Percent of returned items or botched services Cost to produce the item or service
with the orderfulfillment process

suppliers deliveries on time Suppliers lead times Percent defects in purchased materials and services Cost of purchased materials and services

Customer satisfaction

Table 8.1

Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

8-9

Supply-Chain Environments
Table 8.2 Environments Best Suited for Efficient and Responsive Supply Chains

Factor Factor
Demand Demand Competitive Competitive priorities priorities

Efficient Efficient Supply Supply Chains Chains

Predictable; Predictable; low low forecast forecast errors errors Low Low cost; cost; consistent consistent quality; quality; on-time on-time delivery delivery

Responsive Supply Chains

Unpredictable; high forecast errors Development speed; fast delivery times; customization; volume flexibility; highperformance design quality Frequent High High 8-10

New-product New-product introduction introduction Contribution Contribution margins margins Product Product variety variety

Infrequent Infrequent Low Low Low Low

Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

Supply-Chain Design
Table 8.3 Design Features for Efficient and Responsive Supply Chains

Factor
Operations strategy

Capacity cushion Inventory investment Lead time Supplier selection

Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

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Supply-Chain Design
Table 8.3 Design Features for Efficient and Responsive Supply Chains

Factor
Operations strategy

Efficient Supply Chains

Make-to-stock or standardized services; emphasize high volume, standardized products, or services Low Low; enable high inventory turns Shorten, but do not increase costs Emphasize low prices; consistent quality; ontime delivery 8-12

Capacity cushion Inventory investment Lead time Supplier selection

Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

Supply-Chain Design
Table 8.3 Design Features for Efficient and Responsive Supply Chains

Factor
Operations strategy

Efficient Supply Chains

Make-to-stock or standardized services; emphasize high volume, standardized products, or services Low Low; enable high inventory turns Shorten, but do not increase costs Emphasize low prices; consistent quality; ontime delivery

Responsive Supply Chains

Assemble-to-order, maketo-order, or customized services; emphasize product or service variety High As needed to enable fast delivery time Shorten aggressively Emphasize fast delivery time; customization; volume flexibility; highperformance design quality 8-13

Capacity cushion Inventory investment Lead time Supplier selection

Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

Supply-Chain Dynamics
Customer Customer

Firm A

(a)

Figure 8.5
Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

8-14

Supply-Chain Dynamics
Customer Customer

Firm A

Firm B

(a)
Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

Figure 8.5

8-15

Supply-Chain Dynamics
Customer Customer

Firm A

Firm B

Firm C
Figure 8.5 (a)
Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

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Supply-Chain Dynamics
Customer Customer Materials requirements

Firm A

Firm B

Firm C Time
(a) (b)
Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

Figure 8.5

8-17

Supply-Chain Dynamics
Customer Customer Materials requirements

Firm A

Firm B

Firm A

Firm C Time
(b) (a)
Foundations of Operations Management, Canadian Edition Ritzman, Krajewski, Klassen 2004 Pearson Education Canada Inc.

Figure 8.5

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Supply-Chain Dynamics
Figure 8.5

stomer

Customer Materials requirements Firm C

Firm A

Firm B

Firm A

Firm C

Supply Chain Disruptions

Internal Causes
Internally Generated Shortages New Product & Service Introductions Engineering Changes Product & Service Promotions Information Errors

External Causes
Volume changes Product & service mix changes Late Deliveries