Chapter 11 Supply chain management

lead time service metric

several factors influence the lead time for an order -the mode of transportation, amount paid for priority service. -operational capabilities of the sender -inventory availability

Overseas sourcing

should the firm insource in their own country or outsource in a different country companies outsource to cut costs before choosing you should look at average hourly wages. Europe countries is most expensive and asian countries are least expensive

Smaller order quantities

since distributers are located closer to consumers than the manufacturers, they can help retailers (their customers) keep less inventory, which saves them from having to purchase more costly space to house inventory. called *breaking bulk* service where a distributer purchases in large quantities from manufacturers but then allows customers to purchase in smaller quantities

variability due to disruptions

supply chain can span around the globe. disruptions can be natural or political/economic

material/inventory flow

*Upstream* Supplier 3 Supplier 2 Supplier 1 Manufacturer Distributer Retailer *downstream*

supply chain performance metrics

*cost metrics* procurement labor inventory transportation *service metrics* lead time inventory availability

differences in Make to order and make to stock

*make to stock* the production of an item before the demand for that item has been identified product is made and it must wait for a customer to purchase it customers can be impatient . *make to order* the final production of an item occurs after the demand for that item has been identified distinction between make to stock and make to order can be substantial regarding paint *make to stock* you can store 1000 cans for every color (high holding costs, lower profit margin, longer flow time) *make to order* you can store 10 *blank cans* and make the exact color (cheaper, lower flow time)

Tactical decisions

Day to day decisions that focus on operational process execution that impact short-term performance -Individual products and resources -What product to make, how much, when -where to ship Made by functional managers and supervisors

Variability due to demand

Level -total demand across the supply chain Variety -how does the total demand get allocated across the various flavors, types, or versions of the offered product. Location -how does the total demand get allocated across the locations in the supply chain

Strategic decisions

Long term decisions that focus on strategic outcomes and performance -Expensive, complex, difficult to reverse once made, made by top management -Number of facilities to have, facility size, location, -Make or buy decisions products come in two types *functional* *innovative*

What causes the bullwhip effect?

Overreactive ordering batching price promotions

suppliers & manufacturers

Products start with tier 2 suppliers as individual components. tier 2 suppliers provide their components to tier 1 suppliers, who make more complex components tier 1 suppliers are the primary suppliers to manufacturers, where products are designed and assembled into their final form, fit, or funciton for consumption

Price promotions

buy 1 get 1 free can apply to distributers buying products from suppliers results in the distributer lowering the average cost of the items it purchases, which helps to increase profits on the sale of those items in retailers

online retailing

can serve multiple markets with a single fulfillment center located some distance away online retailers incur the cost of lead time, and have less brick and mortar stores but they spend less than traditional retailers on the space to store inventory

faster delivery lead times

companies can have distribution centers located around the country (closer to customers) to shorten lead time *lead time* the time to receive an order

supply chain structure and roles

consists of a network of firms that begins with raw materials and ends with final users. can be local or around the globe *consists of* Suppliers Manufacturers Distributers retailers

failure in operating practice

could be consequences for how the supplier conducts business. (child labor, low wages, inhumane conditions, etc.) an approach to mitigate uncertainty is to adopt industrywide standards.

Natural disruptions

earthquakes, volcanoes, tsunamis etc. a company cant do much to prevent these but they shouldn't ignore it. the company should evaluate the chances a supplier may be susceptible to these disruptions, and possibly choose a different supplier

mode of transportation

faster transportation can reduce inventory, but it is expensive. theres trade offs you can place an order with the supplier at regular intervals, the time between the orders are *periods*. should be concerned with two types of inventory *on order inventory* the inventory that the supplier has shipped but has not be received by next in line of supply chain *on hand inventory* the inventory that is ready to be used to serve customer demand

supply chain strategies

goal is to reduce variability, increase flexibility, and reduce costs *Strategies can depend on* mode of transportation Overseas sourcing make to order

Service metrics

good service is measured in two ways *Lead time* *inventory availability*

inventory

how much inventory is there where is it making sure you have inventory full of toys in time for the christmas rush costs associated -storing inventory -maintenance opportunity costs

Overreactive ordering

if customers order 10 units, and thats up from last week's 8. what about next week? you could order 10, or follow the increasing trend and order 12. turns out it goes down to 6 the swing in demand is larger the higher up the supply chain you are

Cost effective storage of inventory

its cheaper to store items in a distribution center as it doesn't require the maintenance to look extra nice for customers *distribution center* a building used to receive products from suppliers and then redistribute them to retail stores or send packages to consumers

supply chain decisions

managing supply chain involves a broad set of decisions *Tactical decisions* *Strategic decisions*

Distributers and retailers

manufacturers distribute the products to final consumers using distributers and retailers retailers provide products to customers and may assist in purchasing decisions *types of retailers* brick and mortar retailers -physical stores where consumers can purchase products immediately Mail order (catalog) retailers -retailers that merchandize their goods via a print catalog and sell to consumers by shipping goods Online retailers -retailers that merchandize their goods via an online website and sell to consumers by shipping them goods

inventory availability

measured in a few ways *in stock probability* the probability that all demand is served within an interval of time* = demand satisfied/ inventory *stockout probability* probability that demand for an item exceeds its inventory during a period of time. = unsatisfied demand/ inventory *fill rate* the fraction of demand satisfied

Distributers role in supply chain

often least understood you don't "cut out the middle man" because they create value *sources of value* cost effective storage of inventory faster delivery lead times smaller order quantities

innovative products

products that are relatively "risky" in the sense that they can experience substantial variability. *market responsive*

Functional products

products that are relatively "safe" in the sense that they do not experience a considerable amount of variability *Physically efficient*

variability due to supply chain partner performance

supply chain partners can increase the variability in the supply chain in a number of ways failure to deliver quantity needed failure to deliver the quality needed failure in finances failure to operate in a acceptable manner

Procurement

the cost of goods purchased from suppliers, usually the highest cost associated with making physical goods. companies will have teams who negotiate the purchase price from suppliers also are tasked with selecting qualified suppliers

Transportation

the faster you want to deliver something, the higher the cost *6 modes of transportation* rail road water-slowest but cheapest air-fastest but most expensive electronic pipeline

failure in finances

the retailer is given some time to pay the supplier, if they cant it causes problems. could be delayed pay or bankruptcy. if a supplier goes bankrupt, that leaves the manufacture with a hole in their supply chain- causing delays most firms require supply chain partners are financially sound before approving working with them

Variability due to bullwhip effect

the tendency for demand to become more volatile at higher levels of the supply chain *demand volatility at the higher levels of supply chain can be substantially greater than at the lower levels* starting to be phased out of supply chain management *what causes the bullwhip effect?*

Labor

the wages and salaries of the individuals in various supply chain functions also a large cost

Batching

to avoid bullwhip effect, each level of supply chain can order the exact same amount that was demanded from its customers. *bullwhip occurs because a firm is not ordering a quantity that exactly matches demand* solution is to reduce the minimum batch quantities for orders

Sources of variability in a supply chain

understanding the causes of supply chain variability allows a manager to design the supply chain to better cope with that variability *sources of variability* consumer demand bullwhip effect Supply chain partner performance Disruptions

political/economic disruptions

wars, conflicts, etc. a firm should consider avoiding regions of political unrest and have contingency plans in place in case it nevertheless faces such a situation

failure in quality

when a failure in quality is detected, *it creates additional costs* (wasted labor and materials) as the failure is corrected or remediated

failure in quantity

you agree through negotiations with the supplier that you will deliver 1000 products this year. what if the supplier cant deliver the quantity you need? reasons he may not deliver the quantity -don't have capacity to make the demand -supplier may not believe your demand forecast --to make demand more believable, back it up by guaranteeing a minimum order quantity or by helping fund the purchase of raw materials or equipment