global supply chain management. inventory reduction tactics reduce lot sizes improved demand...
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Global Supply Chain Management
Global Supply Chain Management
Global Supply Chain Management
Global Supply Chain Management
Inventory Reduction Tactics
Reduce lot sizesImproved demand forecastsReduce lead timesReduce supply uncertainties
R = dL + Z sqrt(L)
Global Supply Chain Management
Themes• Supplier Consolidation / Purchasing and Procurement• RFID• VMI• Green• Information Technology• Lean• Pull
Global Supply Chain Management
Total Sales = $10,000,000
Purchased Materials = 7,000,000Labor and Salaries = 2,000,000
Overhead = 500,000
Profit = 500,000
Purchasing / ProcurementHow can we double profits to $1,000,000?
Global Supply Chain Management
Purchasing / ProcurementImportant Practices
•Leverage buying power
•Commit to small number of dependable suppliers
•Partner with suppliers to reduce total cost
• Supply Chain Management • Some Lingo• Some Global Issues• The Bullwhip Effect in Supply Chains• Information Technology• Improvement Ideas• Cases
Global Supply Chain Management
Global Supply Chain Management
Factors to be considered when moving from (mostly) domestic chains to global ones
Global Supply Chain Management
Global Supply Chain Management
HP and DeskJet Background.
Problems and Goals.
Potential Solutions.
HP Solution.
Global Supply Chain Management
0
200
400
600
800
Weeks
Bullwhip Effect due to Seasonal Sales of Campbell Soup
Ord
er Q
uan
tity
1 52
Shipments from Manufacturer to Distributors
Retailers’ Sales
Results:
•
•
•
Global Supply Chain Management
Global Supply Chain Management
• Supply Chain Management Systems (SCM): Automate flow of information between firm and suppliers to optimize production and delivery
• Supply Chain Management: Close linkage of activities involved in buying, making, moving a product
• Supply Chain: Network of organizations and business processes for production and distribution of products
Global Supply Chain Management
Information Systems Can Help Supply Chain Participants:• • • • •
Information Technology
Global Supply Chain Management
Upstream Downstream
Inboundlogistics
Productionprocesses
Outboundlogistics
Sales andmarketing
Customerservice
Information Technology
Upstream Downstream
Global Supply Chain Management
Global Supply Chain Management
NoYes
• Most supply chains use inter-modal transportation, multiple transportation channels (railway, truck, etc) to move products from origin destination
• This creates supply chain complexities
Global Supply Chain Management
Logistics
Global Supply Chain Management
• Fulfillment
• Logistics
• Production
• Revenue and profit
• Cost and price
• Cooperation among SC partners
A Good SCM System will help a firm
Global Supply Chain Management
• Decide when and what to produce, store, and move
• Rapidly communicate orders
• Track the status of orders
• Check inventory availability and monitor inventory levels
• Reduce inventory, transportation, and warehousing costs
• Track shipments
• Plan production based on actual customer demand
• Rapidly communicate changes in product design
Identify the problem(s) Haworth was facing.
What alternative solutions were available to management?
How well did the chosen solution work?
What people, organization, and technology issues need to be addressed?
Global Supply Chain Management
• i2 Technologies – www.i2.com• Manugistics• Supply Chain Knowledge Base – supplychain.ittoolbox.com• Supply Chain Management Review – www.scmr.com• CIO Magazine – www.cio.com• About Inc. (Logistics/Supply Chain) – logistics.about.com• IBM - http://www-03.ibm.com/solutions/businesssolutions/scm/index.jsp
• Oracle/PeopleSoft Supply Chain – www.oracle.com/applications/scm• Institute for Supply Chain Management – www.ism.ws
Additional SCM Resources
Global Supply Chain Management
Global Supply Chain Management
Inve
ntor
y Man
agem
ent
Concepts Weeks of supply Turns ABC Analysis Q System Q Systems Total Costs P System Q System vs. P System
Global Supply Chain Management
Inventory is a stock of anything held to meet some future demand. It is created when the rate of receipts exceeds the rate of disbursements.
A stock or store of goods.
Inventory Turns (Turnover)
COGS/Avg. Inventory Investment
Global Supply Chain Management
Weeks of supply = Average aggregate Inventory Value / Weekly Sales (at cost)
IT = COGS / Average aggregate inventory value
The Eagle Machine Company averaged $2M in inventory last year, and the COGS was $10M. If the company has 52 business weeks per year, how many weeks of supply are held in inventory? What is the inventory turnover rate?
Global Supply Chain Management
10 20 30 40 50 60 70 80 90 100
Percentage of SKUs
Per
cen
tage
of
dol
lar
valu
e
100 —
90 —
80 —
70 —
60 —
50 —
40 —
30 —
20 —
10 —
0 —
Class C
Class A
Class B
Global Supply Chain Management
Booker’s Book Bindery divides SKUs into three classes, according to their dollar usage. Calculate the usage values of the following SKUs and determine which is most likely to be classified as class A.
SKU Number Description Quantity Used per Year
Unit Value ($)
1 Boxes 500 3.00
2 Cardboard (square feet)
18,000 0.02
3 Cover stock 10,000 0.75
4 Glue (gallons) 75 40.00
5 Inside covers 20,000 0.05
6 Reinforcing tape (meters)
3,000 0.15
7 Signatures 150,000 0.45
Global Supply Chain Management
SKU Number Description
Quantity Used per
Year
Unit Value ($)
Annual Dollar Usage ($)
1 Boxes 500 3.00 = 1,500
2 Cardboard (square feet)
18,000 0.02 = 360
3 Cover stock 10,000 0.75 = 7,500
4 Glue (gallons) 75 40.00 = 3,000
5 Inside covers 20,000 0.05 = 1,000
6 Reinforcing tape (meters)
3,000 0.15 = 450
7 Signatures 150,000 0.45 = 67,500
Total 81,310
Global Supply Chain Management
Global Supply Chain Management
Global Supply Chain Management
Fixed Quantity Model, Q Continuous Review SystemOrder a fixed amountOrder cycle (time between orders) varies
EOQ, C (holding and ordering costs)
R- Constant demand, constant lead time- Variable demand~N, constant lead time
Fixed Interval Model, P Periodic Review SystemOrder various amountsOrder cycle is fixed or constant
Global Supply Chain Management
Constant demand, constant lead time.
EOQ=Economic Order QuantityQ=Order QuantityD=Annual demandS=Order cost per orderH=Annual holding cost per unitTC=Total annual costsTBO=Time between orders, order cycle time
R=Reorder Point, used when LT>0d=demand rate, dbar mean demand rateL=Lead time
Constant means fixed or non-fluctuating.
Global Supply Chain Management
Constant demand, constant lead time.O
n-h
and
inve
nto
ry
(un
its)
Time
Averagecycleinventory
Q
Q—2
1 cycle
Receive order
Inventory depletion (demand rate)
Global Supply Chain Management
Time
On
-han
d in
ven
tory
TBO TBO
L L
TBO
L
Orderplaced
Orderplaced
Orderplaced
IP IPIP
R
OH OHOH
Orderreceived
Orderreceived
Orderreceived
Orderreceived
Global Supply Chain Management
Ex: Find EOQ, TBO, and make cost comparisonsEx: Find EOQ, TBO, and make cost comparisons
Constant demand, constant lead time, LT=0.
Suppose that you are reviewing the inventory policies on an item stocked at a hardware store. The current policy is to replenish inventory by ordering in lots of 360 units. Additional information given:
D = 60 units per week, or 3120 units per yearS = $30 per orderH = 25% of selling price, or $20 per unit per year
Global Supply Chain Management
Ex: Determine ROPEx: Determine ROP
Constant demand, constant lead time, LT>0.
Q=300 units, LT=8 days, TBO=30 days.
On
-han
d in
ven
tory
(u
nit
s)
Time
R
Global Supply Chain Management
Time
On
-han
d in
ven
tory
TBO1 TBO2 TBO3
L1 L2 L3
R
Orderreceived
Orderplaced
Orderplaced
Orderreceived
IP IP
Orderplaced
Orderreceived
Orderreceived
0
IP
Global Supply Chain Management
Average demand
during lead time
Cycle-service level = 85%
Probability of stockout(1.0 – 0.85 = 0.15)
zσdLT
R
Global Supply Chain Management
Ex: Determine EOQ, ROP Q SystemEx: Determine EOQ, ROP Q System
Variable demand~N, constant lead time, LT>0.
The Discount Appliance Store uses a fixed order quantity model. One of the company’s items has the following characteristics:
Demand = 10 units/wk (assume 52 weeks per year, normally distributed)Ordering and setup cost (S) = $45/orderHolding cost (H) = $12/unit/yearLead time (L) = 3 weeksStandard deviation of demand = 8 units per weekService level = 70%
Periodic Review System (P)Periodic Review System (P)
P P
T
L L L
Protection interval
Time
On
-han
d in
ven
tory
IP3
IP1
IP2
OrderplacedOrderplaced
Orderplaced
Orderreceived
Orderreceived
Orderreceived
IP IPIP
OH OHQ1
Q2
Q3
Global Supply Chain Management
The on-hand inventory is 10 units, and T is 400. There are no back orders, but one scheduled receipt of 200 units. Now is the time to review. How much should be reordered?
Global Supply Chain Management
Calculating P and TCalculating P and T
Demand for the bird feeder is normally distributed with a mean of 18 units per week and a standard deviation in weekly demand of 5 units. The lead time is 2 weeks, and the business operates 52 weeks per year. The Q system called for an EOQ of 75 units and a safety stock of 9 units for a cycle-service level of 90 percent. What is the equivalent P system?
Global Supply Chain Management
SOLUTION
We first define D and then P. Here, P is the time between reviews, expressed in weeks because the data are expressed as demand per week:
D = (18 units/week)(52 weeks/year) = 936 units
P = (52) =EOQ
D(52) = 4.2 or 4 weeks
75936
With d = 18 units per week, an alternative approach is to calculate P by dividing the EOQ by d to get 75/18 = 4.2 or 4 weeks. Either way, we would review the bird feeder inventory every 4 weeks.
Global Supply Chain Management
Calculating P and TCalculating P and T
We now find the standard deviation of demand over the protection interval (P + L) = 6:
Before calculating T, we also need a z value. For a 90 percent cycle-service level z = 1.28. The safety stock becomes
Safety stock = zσP + L = 1.28(12.25) = 15.68 or 16 units
We now solve for T:
= (18 units/week)(6 weeks) + 16 units = 124 units
T = Average demand during the protection interval + Safety stock
= d(P + L) + safety stock
units 12.2565 LPdLP
Global Supply Chain Management
Ex: P System, Determine the Amount to OrderEx: P System, Determine the Amount to Order
d=30 units per dayd=3 units per dayLT=2 daysService level 99%P=7 daysOH=71 units
Global Supply Chain Management
Q Model vs. P Model Q Model vs. P Model
Global Supply Chain Management