Supply-Chain Design

Supply Chain

Customer

Customer

Customer

Customer

Distribution center

Distribution center

Manufacturer

Tier 1

Tier 2

Tier 3

Legend

Supplier of services

Supplier of materials

Supply Chain Dynamics for Facial Tissue

9,000 Order Quantity 7,000 5,000 3,000 0 Time
Consumers daily demand
Retailers daily orders to manufacturer Package suppliers weekly orders to cardboard supplier Manufacturers weekly orders to package supplier

Materials Management

Purchasing domain of responsibility

Egg supplier

Sugar supplier

Flour supplier

Chocolate chips supplier

Maintenance services supplier

Figure 7

Materials Management
FG storage

Transformation process and WIP storage

Purchasing domain of responsibility

Egg supplier

Sugar supplier

Flour supplier

Chocolate chips supplier

Maintenance services supplier

RM storage
Figure 7

Materials Management
FG storage

Production domain of responsibility

Transformation process and WIP storage

RM storage

Purchasing domain of responsibility

Egg supplier

Sugar supplier

Flour supplier

Chocolate chips supplier

Maintenance services supplier

Figure 7

Materials Management
FG storage

Production domain of responsibility

Transformation process and WIP storage

RM storage

Purchasing domain of responsibility

Egg supplier

Sugar supplier

Flour supplier

Chocolate chips supplier

Maintenance services supplier

Figure 7

Materials Management
Supermarket A distribution center Distribution domain of responsibility Supermarket B distribution center
FG storage

Transportation services supplier

Production domain of responsibility

Transformation process and WIP storage

RM storage

Purchasing domain of responsibility

Egg supplier

Sugar supplier

Flour supplier

Chocolate chips supplier

Maintenance services supplier

Figure 7

Materials Management
Supermarket A distribution center Distribution domain of responsibility FG storage Supermarket B distribution center Transportation services supplier

Production domain of responsibility

Transformation process and WIP storage

RM storage

Purchasing domain of responsibility

Egg supplier

Sugar supplier

Flour supplier

Chocolate chips supplier

Maintenance services supplier

Figure 7

The Need for Supply chain Management

The need to improve operations Increasing levels of outsourcing Increasing Transportation costs Competitive pressure Increasing globalization Increasing importance of e-commerce The complexity of supply chain The need to manage inventories

Benefits of SCM
Lower Inventories Lower Costs Higher productivity Shorter lead time Higher profit Greater customer loyalty

Elements of Supply Chain

Customer Forecasting Design Capacity Planning Processing Inventory Purchasing Suppliers Location Logistics

Inventory Measures
Average inventory = $2 million Cost of goods sold = $10 million 52 business weeks per year

$2 million Weeks of supply = = 10.4 weeks ($10 million)/(52 weeks)

$10 million Inventory turns = = 5 turns/year $2 million

Example 1

Inventory Measures

Figure 8

Supply-Chain Process Measures

TABLE 1 SUPPLYCHAIN PROCESS MEASURES

Customer Relationship
Percent of orders

Order Fulfillment
Percent of incomplete

Supplier Relationship
Percent of

taken accurately Time to complete the order placement process Customer satisfaction with the order placement process

orders shipped suppliers Percent of orders deliveries on time shipped on time Suppliers lead Time to fulfill the times order Percent defects in Percent of botched services and services or returned purchased items materials Cost to produce the Cost of services service or item and purchased Customer satisfaction materials with the order fulfillment process

Supply-Chain Environments
TABLE 2 ENVIRONMENTS BEST SUITED FOR EFFICIENT AND RESPONSIVE SUPPLY CHAINS

Factor
Demand Competitive priorities

Efficient Supply Chains

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

Responsive Supply Chains

Unpredictable, high forecast errors Development speed, fast delivery times, customization, volume flexibility, variety, top quality Frequent

New-service/ product introduction Contribution margins Product variety

Infrequent

Low

High

Low

High

Supply-Chain Design
TABLE 3 DESIGN FEATURES FOR EFFICIENT AND RESPONSIVE SUPPLY CHAINS

Factor
Operation strategy

Efficient Supply Chains

Make-to-stock or standardized services; emphasize high volume, standardized services or products 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 service or product variety High As needed to enable fast delivery time Shorten aggressively
Emphasize fast delivery time, customization, variety, volume flexibility, top quality

Capacity cushion Inventory investment Lead time

Supplier selection

SCM System
Order Commitment Transportation Management Purchasing Management Demand Management Vendor-Managed Inventory Replenishment Planning Configuration Material Planning Scheduling Master Planning Strategic Planning