NOTES 1 What is Supply Chain?

planning, designing, and control of information, materials, funds and services along the supply chain in order to meet customer requirements in an efficient manner Competitive Advantage Cost Advantage- lower end-to-end cost Value Advantage- creating superior customer value through enhanced service Matching Supply with Demand inability to respond to changes in demand in an effective manner can lead to lost sales and/or excess inventory, both likely to lower a firms profitability Johnson and Johnson Recalls poor quality raises costs and creates negative ripple effects a company that has to identify failures through controls must devote a lot of resources for quality assurance Key Forces Transforming Supply Chains relentless pressure to reduce costs pursuits of new markets product innovation to fuel growth these forces have driven companies to take aggressive actions to improve supply chain performance, fragmenting the supply chain and often leading to increased complexity Outsourcing allows firms to focus on their core competencies firms outsource strategically significant functions such as manufacturing, logistics, product design and other innovation related activities outsourcing is not new, economic progress has always been linked with outsourcing of tasks that the company used to do itself Are factory jobs gone forever? American economy is being driven by 2 forces- rising productivity and expanding globalization US is losing jobs in textiles, furniture-making, electronics,..., but it is creating new jobs in lucrative new advanced manufacturing sectors such as in biotechnology, green technologies, pharmaceuticals, and aerospace Garment Factories in Bangladesh Bangladesh is now the 2nd biggest apparel manufacturer, behind China factories meet the apparel companies demands for lower prices by ignoring the workers rights and safety Why Stay in Manufacturing? US manufacturing creates most of the technological innovations in the world manufacturers conduct 70% of private sector research and development and employ 64% of the nations scientists and engineers Substitutability information, inventory, and capacity/capability are substitutes for each other in any system higher profits linked with higher level of information sharing

 design flows to help ensure, accurate, real-time visibility across the supply chain Green Manufacturing as energy prices rise and consumers demand more environmentally responsible products, manufacturers are faced with increasing opportunities and challenges implementing eco-friendly changes can provide lower operating costs, access to new markets, and an overall more profitable enterprise Summary globalization and outsourcing are here to stay, and most US manufacturing firms must adapt to increasing global competition workers now compete globally, so individuals must continually learn more to vie successfully with their peers worldwide reshoring is real, but impact is minimal need innovational changes in products, processes, or services to improve efficiency, productivity, quality, competitive positioning, market share, cost reduction and reengineering alone is not enough, innovation is the key in providing aggressive top-line growth, and for increasing bottom-line results sustainability is rapidly becoming the overarching business drive for industry. the triple bottom line approach to economic, environmental, and societal balance is defining many corporate strategies NOTES 2 Corporate and Supply Chain Strategies corporate strategy- defines the set of customer needs a firm seeks to satisfy through its products and services. specifies the portfolio of new products that the company will try to develop marketing marketing and sales strategy- specifies how the market will be segmented and product positioned, priced, and promoted operations and supply chain strategy- determines operation processes, operations planning and control, procurement, transportation of materials, distribution of product; consistency and support between manufacturing and supply chain strategy, competitive strategy, and other functional strategies is important How effectively do companies use manufacturing and supply chain management? internally neutral- correct the worst problems; minimize any negative potential in the operations and supply chain areas externally neutral- adopt industrys best practices; follow industry practice internally supportive- link operations and supply chain with business strategy; support the business strategy externally supportive- give an operations and supply chain advantage; operations and supply chain- based competitive advantage How are Orders Won and Lost? Order Winners- characteristics and capabilities which tip customers to purchase one firms product/service in preference to anothers Order Qualifier- characteristics and capabilities which allow serious consideration of product/service/firm by buyers; does not help win orders Order Losers- characteristics which prevent repeat sales once an initial sale has been

made Best Manufacturing and Supply Chains Agile- ability to react quickly to unexpected shifts in supply, demand and disruptions Adaptable- ability to change supply chain configurations in response to long-term changes in the markets, political shifts, demographic trends and technology Aligned- way in which the interest of various players involved in the supply chain align Efficient-Responsive Strategy Efficient Strategy- production and distribution decisions based on long-term forecast Responsive Strategy-production and distribution are demand driven so that they are coordinated with true customer demand rather than forecast demand NOTES 3 Key Elements Affecting Supply Chain Network Design Cost Time Service Agility Efficient and Responsive Network Design Efficient Network Design- focus on physical effectiveness; lead time reduction, simplification, leveled capacity allocation Responsive Network Design- focus on responsiveness; structural flexibility, storage capacity, operational flexibility Procurement Segmentation (Kraljics Supply Matrix) Bottleneck Items- high supply risk, low profit impact Non-Critical Items- low supply risk, low profit impact Strategic Items- high supply risk, high profit impact Leverage Items- low supply risk, high profit impact Why do Companies Outsource Manufacturing? Manufacturing is not their core- supplier has better expertise Cost Savings- outsourcing creates competition to get the business Lack of Scale- supplier can aggregate production of lots of clients Flexibility- suppliers can ramp up quickly Improve ROI- reduce capital expenditures, efficient use of in-house labor Faster time-to-market Access to technology possessed by contract manufacturers Important Factors in Outsourcing manufacturing cost transportation efficiency lead time and scheduling stability product design technical capabilities Flexibilty leading companies are investing in developing manufacturing facilities and supply chain networks as hedges against uncertainties in supply and demand flexibility is becoming fundamental for competing effectively in todays turbulent markets,

for it improves supply chain responsiveness and productivity plants are fairly flexible in several industries How Flexibility Improves Revenue and Capacity Utilization flexibility allows production shifts to high selling products to avoid lost sales Flexibilities Process Flexibility- ability to produce a variety of products with the same operational processes; strategic objective- product line diversity, customization Product Flexibility- ability to change over to a new set of products economically and quickly in response to markets or engineering changes; strategic objective- product innovation, more responsive to markets Volume Flexibility- ability to adapt quickly and easily to changing demand volumes; strategic objective- market share Capacity Planning and Flexibility often cited as a key revenue generator- a powerful asset to deal with uncertainty flexibility makes supply chain responsive- allows production shifts to high demand products to avoid lost sales flexibility has the greatest benefit when added to yield fewer and longer chains a small amount of flexibility can have the same benefits as total flexibility Process Choice process types are defined by the volume and variety of item they process process types go by different names depending on whether they produce products or services Matching Products and Processes job shop- one of a kind, process segments batch- low volume, many products, disconnected line flow assembly lines- higher volume, few major products, connected line flow continuous flow- high volume, high standardization, continuous, rigid line flow Job Shop very small quantities specially made, high variety, low repetition skill requirements are usually very broad skilled jobber, or team, complete whole product Batch higher volumes and lower variety than for jobbing standard products, repeating demand, but can make specials specialized, narrower skills set-ups (changeovers) at each stage of production Assembly Lines higher volumes than batch standard, repeat products (runners) low and/or narrow skills no set-ups, or almost instantaneous ones Continuous Flow extremely high volumes and low variety: often single product

 standard, repeat products (runners) highly capital-intensive and automated few changeovers required difficult and expensive to start and stop the process NOTES 4 Impact of Bullwhip Effect (higher costs) inventory- more safety stock needed transportation- lower utilization of transportation warehousing- more warehousing capacity needed manufacturing- lower capacity utilization customer service- lower service level, more likely to cause stockouts and lost sales ERP System central database sales and delivery applications reporting applications financial applications manufacturing applications inventory and supply applications human resource applications service applications EDI electronic data interchange systems are used to send standardized messages (computer-to-computer) between trading partners well accepted by large companies requires complex implementations lease private lines, install communication software too costly for small companies Overview of RFID Technology electronic labeling and identification of objects (often considered the next stage in the barcode evolution) fastest growing segment of the automatic data capture and identification market tags (active, passive, read only, read/write) readers Supply Chain Benefits magnitude of benefits depends upon the level of tagging inventory reduction improve collaboration reduce out-of-stock situation reduce inventory shrinkage and counterfeiting price optimization improve labor productivity Impediments to RFID Technology lack of universal standards high costs of tags and readers

 software to take advantage of vast amount of data generated by the RFID system integration with existing software systems privacy issues other technical problems Why is Right Pricing so Important? pricing is one of the few untapped levers to boost earnings most pricing is still product-centric; product managers focus on the cost of the product, its physical attributes, and margins they seek from the product pricing is a powerful tool to balance supply and demand in real time to manage risks and improve profitability Impact of Optimized SOP- Working Capital demand driven manufacturing higher the variability of demand, the greater the need for manufacturing scheduling systems to be closely coupled with other planning systems integrated planning and scheduling, dynamic safety stock NOTES 5 Supply Chain Processes many SC processes take days to weeks to complete for which the actual time that real work is done may be min or hrs often SC processes arent as efficient, effective or as robust as they could be Reasons -companies dont think SC processes are broken, in fact they think they are doing great -managers are unaware of details, dont know how the process works -job preservation- people involved in poor processes may be afraid of losing their jobs processes must evolve continuously- often the culture for continuous improvement does not exist -leaning organizations- not enough time to think about improvement - lack of cross functional focus -lack of technology -inertia- more comfortable in status quo, change is difficult Linking Operational to Business and Financial Measures would inventory reduction result in significant cost savings would lead time reduction result in significant competitive advantage would throughput increase help generate significantly more revenue would improved customer service generate business over the long run What is Process in Process Analysis? process- a collection of operations connected by a flow of good and information that transforms various inputs into useful outputs Elements of a Process collection of tasks flow of material flow of information storage of material and information

Process Analysis Vocabulary cycle time- average time between completion of successive units -operation cycle time (assumes no starvation, blockages or down time). -process (system) cycle time (black-box) lead time- the time it takes to get completely through a process, from beginning to end capacity- how much output can be produced in a specified period of time with no losses to yield or downtime throughput - how much output is actually produced in a specified period of time utilization (efficiency)- the percentage of time spent actually working on the product or on performing the service (throughput/ capacity) bottleneck- factor that limits the capacity of the overall process -slowest operation (longest cycle time) -scarcest resource (material or people) Critical Path & Littles Law critical path: a path with the longest total cycle time Littles Law- Average WIP = average throughput * average lead time Insights lead time and WIP depends on how a process is managed shorter the lead time, lower the WIP short lead times: -offers the ability to quote faster delivery to customers -lessens the impact of cancelled orders -reduces the need to make forecasts too distant in the future -improves quality management -reduces WIP enables shorter frozen zones in master production schedule Improving Lead Time decrease the work content of critical activities move work content from critical to non-critical activities reduce waiting time Performance of a Process capacity efficiency flexibility quality Where does variability come from? measuring variability: coefficient t of variation = std deviation/ mean ability to measure, understand, and manage variability is critical to effective manufacturing management to mana variability, managers need to develop robust policies- ones that work well most of the time the most powerful tool a manager can have for identifying effective and robust policies is a good probabilistic intuition Important Insights from Queuing Theory

manufacturing plants are queuing networks, queuing and waiting time compromise majority if cycle time Insights a disproportionate reduction in waiting time occurs when changes are made to a system that is near saturation nonlinear relationship between capacity utilization and lead time if overall service rate is fixed, then fewer the number of servers needed to achieve this rate, the less time the customers will spend in the system Utilization and Performance low utilization levels provide: better service levels, greater flexibility, lower waiting costs (lost business) high utilization levels provide: better equipment and employee utilization, fewer idle periods, lower production/service costs Blocking and Starving in Queues in real world, queues never become infinite a resource is blocked if it unable to release the completed unit as there is no buffer space available at the next resource downstream a resource is starved if it is idle because the buffer feeding the resource is empty NOTES 6 Inventory and its Function Stock of any item or resource used in an organization each type arises from different underlying causes and therefore each faces different primary tradeoffs and hence different management challenges Demand uncertainty- forecast error, unrestricted return or cancellation policies, SKU proliferation Supply Variability- unreliable and unpredictable suppliers, variable distribution and transportation, shortages and rationing, record inaccuracies Inventory is the Lifeblood of Operations and Supply Chains links to most other major strategic decisions plays a role in almost all operations decision too much inventory: -write-offs due to excess and obsolescence -tied-up working capital- cash for inventory investment -carrying costs not enough inventory: -risk of lost sales -low service level and poor delivery performance -dissatisfied customers Inventory is important each dollar tied up in inventory is a dollar unavailable for investment in new products and services, technological improvements, or capacity expansion most inventories are held by manufacturers, wholesalers, and retailers Cost- Service Curve

 Key Supply Chain Cost Drivers -service level -service time -variable and fixed costs -process times and lead times -demand uncertainty Types of Demand Independent Demand- when an items demand is influenced by market conditions and is not related to production decisions for any other item Dependent Demand- when the items demand derives from production for its parents Pareto Analysis Pareto noted that many situations are dominated by a relatively few vital elements items kept in inventory are not of equal importance in term of: -dollars invested -profit potential -sales or usage volume -stock-out penalties controlling the relatively vital few will go a long way toward controlling the situation Factors that Affect the Importance of an Item annual dollar volume of the transactions for an item unit cost scarcity of material used in producing an item availability of resources, manpower, and facilities to produce an item lead time storage requirements for an item pilferage risks, shelf life, and other critical attributes cost of a stockout engineering design volatility Characteristics of Inventory Systems Demand- constant, variable, known, random Lead time- constant, variable, known, random Review time- periodic, continuous Excess demand- back-ordered, lost sales Changing inventory- limited shelf life, obsolescence Relevant Inventory Costs (Unit cost) Unit cost is cost of obtaining one unit of inventory either through purchasing or production Relevant Inventory Costs (Holding or Carrying Costs) capital cost storage, handling insurance obsolescence deterioration, decay, theft, shrinkage

 taxes holding cost is often overstated because firms use a hurdle rate that is too high -annual costs/ average value of stockholding= holding cost factor % -H=i*C Relevant Inventory Costs (Shortage or Backorder Costs) shortage cost occurs when there is demand for an out-of-stock item; a shortage can either be backlogged or lost lost sales customer information costs expediting production down time Relevant Inventory Costs (Ordering or Setup Costs) cost of preparing and monitoring the order- is incurred each time an order is placed -paperwork for order -administrative cost -cost of receiving the product -shipping costs -inspecting goods for quality and quantity -moving to storage Setup cost -equipment setup -sample testing NOTES 6.1 Basic EOQ Model constant, deterministic demand (A units/year) known fixed cost per order placed ($ Cp) fixed unit price ($ P/unit), for any order size holding cost associated with each unit of stock on hand ($ Ch/unit/year) decision: order quantity (Q units) all units in an order arrive all at once as a single batch - TC= AP + (A/Q)Cp + (Q/2)Ch - TC= (A/Q)Cp + (Q/2) Ch Q*= (2ACp/Ch) ^ EOQ with Finite Rate of Production assume that items are produced at a rate of p, and items are consumed at a rate of d assuming p>d TC= DC+ (D/Q)S+ (p-d)QH/(2p) Q* = (2DS/H)^ * (p/p-d)^