supply chain management lecture 17. outline today –survey –midterm –brief semester overview...
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TRANSCRIPT
Outline
• Today– Survey– Midterm– Brief semester overview – Start with Chapter 10
• Next week– Chapter 10
• 3e: Sections 1, 2 (up to page 273), 6• 4e: Sections 1, 2, 3 (up to page 260)
Supply Chain Stages
• A typical supply chain may involve a variety of stages
Manufacturer Distributor Retailer CustomerSupplier
Most supply chains are actually supply networks
Q1
Push/Pull View of Supply Chain Processes
Customer order arrives
PULL PROCESSES
PUSH PROCESSES
Execution is initiated in response to customer orders
(reactive)
Execution is initiated in anticipation of customer orders
(speculative)
Processes are divided based on the timing of their execution relative to a customer order
Q2
Cycle View of Supply Chain Processes
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Manufacturer
Supplier
Cycle view defines the processes
involved and the owner of each process
Q3
2. Understanding the Supply Chain Capabilities
• Supply chain capabilities– Supply chain responsiveness
• Respond to wide ranges of quantity demanded, meet short lead times, large variety, innovative products, high service level, etc
– Supply chain efficiency (low cost)
Highly efficient
Highly responsive
Somewhat responsive
Somewhat efficient
Integrated steel mills
Hanes apparel Most automotiveproduction
Seven-Eleven Japan
Q4
1. Understanding the Customer and Supply Chain Uncertainty
• Understanding customer uncertainty– Demand varies along certain attributes
• Quantity in each lot, response time, variety of products needed, convenience, price, innovation, etc
– Implied demand uncertainty• Demand uncertainty due to the portion of demand that the
supply chain is targeting, not the entire demand
Customer need Causes implied demand uncertainty to…Range of quantity increasesResponse time decreasesVariety of products increasesNumber of channels through which product may be aquired increasesRate of innovation increasesRequired service level increases
Customer need Causes implied demand uncertainty to…Range of quantity increases IncreaseResponse time decreases IncreaseVariety of products increases IncreaseNumber of channels through which product may be aquired increases
Increase
Rate of innovation increases IncreaseRequired service level increases Increase
Q5
Key Observations
1. There is no supply chain strategy that is always right
2. There is a right supply chain strategy for a given competitive strategy
Q6
From Strategy to Decisions
Corporate Strategy
Competitive Strategy
Supply Chain Strategy
Responsiveness Efficiency
Facilities Inventory Transportation Information Sourcing Pricing
Logistical drivers Cross functional drivers
Q7
2. Understanding the Supply Chain Capabilities
• Supply chain capabilities– Supply chain responsiveness
• Respond to wide ranges of quantity demanded, meet short lead times, large variety, innovative products, high service level, etc
– Supply chain efficiency (low cost)
Highly efficient
Highly responsive
Somewhat responsive
Somewhat efficient
Integrated steel mills
Hanes apparel Most automotiveproduction
Seven-Eleven Japan
Q8
Factors Influencing Distribution Network Design
• Performance of a distribution network should be evaluated along two dimensions– Customer needs that are met (customer service)
• Response time (Time it takes for a customer to receive an order)• Product variety (Number of different products that are offered)• Product availability (Probability of having a product in stock)• Customer experience (Ease of placing and receiving orders)• Order visibility (Ability of customers to track their orders)• Returnability (Ease of returning unsatisfactory merchandise)
– Cost of meeting customer needs (supply chain cost)• Inventory (All raw materials, WIP, and finished goods)• Transportation (Moving inventory from point to point)• Facility & handling (Locations where product is stored, assembled,
or fabricated)• Information (Data and analysis of all drivers in a supply chain)
Q11
Retail Storage with Customer Pickup
• Example: Retail stores such as Wal-Mart and JCPenney
• Customers pick up product from retailers– Low transportation cost– High facility cost– Relative easy returnability– Increased inventory cost
• No order tracking necessary– If the product is available at the
retailer, the consumer buys. Otherwise goes to another retailer
• Effective for fast moving items
Retailer
Consumers
RetailerRetailer
DistributorWarehouse
Manufacturers
DistributorWarehouse
Q12
Distributor Storage with Carrier Delivery
• Example: Amazon• Inventory is held at a
warehouse which ships to customer by carriers
• With respect to direct shipping– Inventory aggregation is less– Higher inventory costs– Facility costs are higher– Less information to track
• Warehouses are physically closer to consumers which leads to– Faster response time– Lower transportation cost
• Not effective for slow moving items
DistributorWarehouse
Manufacturers
Consumers
DistributorWarehouse
Q13
Manufacturer Storage with Direct Shipping (Drop Shipping)
• Example: eBags• Products are shipped directly to
the consumer from the manufacturer
• Retailer is an information collector: – Passes orders to the
manufacturers– It does not hold product
inventory• Inventory is centralized at
manufacturer• Drop shipping offers the
manufacturer the opportunity to postpone customization
• Effective for high value, large variety, low demand products
• High transportation cost
Retailer
Manufacturers
Consumers
Q14
Total Logistics Costs
Inventory Costs
LogisticsCosts
Number of Facilities
Transportation Costs
Facility Costs
Logistics Costs
Q16
Factors Influencing Network Design Decisions
• Technological factors– Compare your supplies to the final product, considering whether
value, weight, volume or other factors change – Availability of production technologies– High or low fixed cost
• Semiconductor manufacturing takes place only in 5-6 countries worldwide (building one plant costs about 1 to 4 billion dollars)
Which products gain/lose weight in the production process?
Q17
Factors Influencing Network Design Decisions
• Political factors– Political stability
• Infrastructure factors– Availability of transportation terminals, labor
• Most of Amazon’s distribution centers are located near airports
• Competitive factors– Positive externalities (many stores in a mall makes it more
convenient for customers – one location for everything the customers need)
Q18
Factors Influencing Network Design Decisions
• Technological factors– Compare your supplies to the final product, considering whether
value, weight, volume or other factors change – Availability of production technologies– High or low fixed cost
• Semiconductor manufacturing takes place only in 5-6 countries worldwide (building one plant costs about 1 to 4 billion dollars)
Which products gain/lose weight in the production process?
Q19
Discounted Cash Flow Analysis
• The present value of future cash is found by using a rate of return k– A dollar today is worth more than a dollar tomorrow– A dollar today can be invested and earn a rate of return
k over the next period
Today… Tomorrow…$1 $1*(1 + k)
$1/(1 + k) $1
Today… Tomorrow…$1 $1*(1 + k)
Q20
Impact of Uncertainty in Network Design
Manufacturer Distributor Retailer CustomerSupplier
Building flexibility into supply chain operations allows the supply chain to deal with uncertainty more
effectively
Q21
Role of Forecasting
Push Push Push
Push Push
Push
Pull
Pull
Pull
Manufacturer Distributor Retailer CustomerSupplier
Is demand forecasting more important for a push or pull system?
Q22
Summary: Simple Exponential Smoothing Method
1. Estimate level• The initial estimate of level L0 is the average of all historical
data• L0 = (∑i Di)/ n
• Revise the estimate of level for all periods using smoothing constant • Lt+1 = Dt+1 + (1 – )*Lt
2. Forecast• Forecast for future periods is
• Ft+n = Lt
0
500
1000
1500
2000
2500
3000
3500
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Quarter
Dem
and
Forecast Ft+n = Lt
Q23
Types of Forecasts
• Qualitative– Primarily subjective, rely on judgment and opinion
• Time series– Use historical demand only
• Causal– Use the relationship between demand and some
other factor to develop forecast
• Simulation– Imitate consumer choices that give rise to demand
Q24
Characteristics of Forecasts
1. Forecasts are always wrong!
2. Long-term forecasts are less accurate than short-term forecasts
3. Aggregate forecasts are more accurate than disaggregate forecasts
4. Information gets distorted when moving away from the customer
Q25
Time Series Forecasting
Observed demand =
Systematic component + Random component
L Level (current deseasonalized demand)T Trend (growth or decline in demand)S Seasonality (predictable seasonal fluctuation)
The goal of any forecasting method is to predict the systematic component (Forecast) of demand and measure the size and
variability of the random component (Forecast error)
Q26
Aggregate Planning Strategies
• Basic strategies– Level strategy (using inventory as lever)
• Synchronize production rate with long term average demand• Swim wear
– Chase (the demand) strategy (using capacity as lever)• Synchronize production rate with demand• Fast food restaurants
– Time flexibility strategy (using utilization as lever)• High levels excess (machine and/or workforce) capacity• Machine shops, army
– Tailored strategy• Combination of the chase, level, and time flexibility
strategies
Q27
Period Demand Level Trend0 104.0 3.51 108 107.6 3.52 110 110.9 3.53 115 114.5 3.5
0
500
1000
1500
2000
2500
3000
3500
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Quarter
Dem
and
Forecast Ft+n = Lt + nTt
F6 = L3 + 3T3
F5 = 125.0
Q29
Period Demand Forecast MeanAbsolute% Error
01 190 2112 235 225
APE1 = |E1/D1|*100 = 11.05 APE2 = |E2/D2|*100 = 4.26
MAPE2 = (APE1 + APE2)/2 = 7.65
Q30
Overview
• Chapter 10, 11, 12– Inventory and product availability
• Chapter 14, 15– Sourcing and pricing
Corporate Strategy
Competitive Strategy
Supply Chain Strategy
Responsiveness Efficiency
Facilities Inventory Transportation Information Sourcing Pricing
Types of Inventory
• Raw material inventory– Stocked at plant or supplier– Lowest cost
• Work-in-process (WIP) Inventory – Raw materials transformed by operations– Need just enough
• Finished-goods inventory– WIP after final operation– Stocked at plant, DC, retail store
High flexibility
High cost
The Importance of Inventory
Every other time in the modern era that the U.S. economy has contracted more than 5% in a quarter, falling inventories have been a major reason, if not the single biggest factor. Usually, really bad recessions are worsened by the need for companies to get rid of all the stuff they made but nobody bought. Once the inventories are sold off, the economy can grow quickly again because idled workers are called back.
Source: MarketWatch. Jan 25, 2009
But so far in this recession, the inventory cycle hasn't been a major factor, outside of the housing and auto sectors. … This recession is rooted in a severe credit squeeze and a fundamental readjustment in consumer demand, not in the typical inventory cycle.
The Importance of Inventory
• Firms can reduce costs by reducing inventory, but customers become dissatisfied when an item is out of stock
The objective of inventory management is to strike a balance between inventory investment
and customer service
Demand
• Average demand for Jacob’s product in Pangea– Existing and new markets
0
20
40
60
80
100
120
1 145 289 433 577 721 865 1009 1153 1297 1441
0
20
40
60
80
100
120
140
1 145 289 433 577 721 865 1009 1153 1297 1441
0
2
4
6
8
10
12
14
16
18
1 142 283 424 565 706 847 988 1129 1270 1411
0
2
4
6
8
10
12
14
16
18
1 142 283 424 565 706 847 988 1129 1270 1411
0
2
4
6
8
10
12
14
16
18
1 142 283 424 565 706 847 988 1129 1270 1411
250
Inventory Decisions
• How much to order?– Order quantity or lot size (Q)
• When to order?– Order frequency (n)
Find an inventory policy that is optimal with respect to some criteria (usually cost)
Inventory Profile
Inventory
Time
Q
Q/2
0
Cycle
Lot
size
Q
Average demand D
Average inventory due
to cycle inventory Q/2
Average inventoryAverage demand
Average flow time = = Q/2D
Cycle Inventory: Example
• Given– Q = 1000 units (lot size)– D = 100 units/day (demand)
• Average inventory– Q/2 = 1000/2 = 500 (average inventory level from cycle inventory)
• Average flow time– Q/2D = 1000/(2*100) = 5 days (time a unit spends in the supply chain)
• Lower inventory is better because– Average flow time is lower– Working capital requirements are lower– Lower inventory holding costs
Why Order in Large/Small Lots?
• Fixed ordering cost: S (cost incurred per order)– Increase the lot size to decrease the fixed ordering cost per unit
• Holding cost: H (cost of carrying one unit in inventory)– Decrease the lot size to decrease holding cost
• Material cost: C (cost per unit)
Lot size Q is chosen by trading off holding costs against fixed ordering costs
Fixed cost Material costConvenience store Low HighSam's Club High Low