Designing Supply Chain Management process.ppt
- 2. Outline • Today – Chapter 3 – Start with Chapter 4 • Thursday – Finish Chapter 4 – Introduction to Excel Solver • Homework 1 – Due Thursday January 28 before class
- 3. From Strategy to Decisions Corporate Strategy Competitive Strategy Supply Chain Strategy Responsiveness Efficiency Facilities Inventory Transportation Information Sourcing Pricing Logistical drivers Cross functional drivers
- 4. Facilities • Facility decisions – Production facility • Flexible versus dedicated • Product focus (fabrication and assembly) versus functional focus (fabrication or assembly) – Storage facility • Cross-docking versus storage • Metrics – Capacity – Utilization – Flow time (theoretical and actual) – Flow time efficiency – Product variety – Average batch size – Service level Overall tradeoff: Cost of the number, location and type versus level of responsiveness How could a car manufacturer increase responsiveness through its facilities? Corporate Strategy Competitive Strategy Supply Chain Strategy Responsiveness Efficiency Facilities Inventory Transportation Information Sourcing Pricing
- 5. Toyota • Worldwide operations Source: http://www2.toyota.co.jp/en/facilities/manufacturing/worldwide.html
- 6. Honda • East Liberty, OH – Using Honda's flexible manufacturing, this plant produces cars and light trucks on the same assembly line • Marysville, OH – One of the most integrated and flexible auto plants in North America, it houses stamping, welding, paint, plastic injection molding and assembly under one roof.
- 7. Inventory • Inventory decisions – Cycle inventory – Safety inventory – Seasonal inventory – Level of product availability • Metrics – Average inventory – Units that have been in stock for more than a specified period of time – Fill rate (fraction of orders that were met on time from inventory) – Fraction of time out of stock Overall tradeoff: Level of inventory versus level of product availability How could a grocery retailer use inventory to increase responsiveness? Corporate Strategy Competitive Strategy Supply Chain Strategy Efficiency Facilities Inventory Transportation Information Sourcing Pricing Responsiveness
- 8. Transportation • Transportation decisions – Mode of transportation • Air, package carriers, truck, rail, sea, pipeline, intermodal, … • Metrics – Inbound/outbound cost – Inbound/outbound cost per shipment – Shipment sizes – Fraction transported by mode Overall tradeoff: Cost and speed of transportation Corporate Strategy Competitive Strategy Supply Chain Strategy Efficiency Facilities Inventory Transportation Information Sourcing Pricing Responsiveness
- 9. Transportation Facts Freight shipments in America 2002 Mode Freight value ($billions) Freight tons (billions) Freight ton-miles (millions) Air 777 10 15 Truck 6660 9197 1449 Rail 388 1895 1254 Water 867 2345 733 Pipeline 285 1656 753 Mulitmodal 1111 213 226 7.7% 66.0% 3.8% 8.6% 2.8% 11.0% 0.1% 60.0% 12.4% 15.3% 10.8% 1.4% 0.3% 32.7% 28.3% 16.5% 17.0% 5.1%
- 11. Transportation • Transportation decisions – Design of transportation network • Route and network selection – Mode of transportation • Air, package carriers, truck, rail, sea, pipeline, intermodal, … • Metrics – Inbound/outbound cost – Inbound/outbound cost per shipment – Shipment sizes – Fraction transported by mode Overall tradeoff: Cost and speed of transportation How does Dell use transportation to improve responsiveness? Corporate Strategy Competitive Strategy Supply Chain Strategy Efficiency Facilities Inventory Transportation Information Sourcing Pricing Responsiveness
- 12. Amazon.com • Fulfillment and warehousing locations – Arizona, USA: Phoenix, Goodyear – Delaware, USA: New Castle – Indiana, USA: Whitestown, Munster – Kansas, USA: Coffeyville – Kentucky, USA: Campbellsville, Hebron (near CVG), Lexington, and Louisville – Nevada, USA: Fernley and Red Rock (near 4SD) – Pennsylvania, USA: Carlisle, Chambersburg, Hazleton, and Lewisberry – Texas, USA: Dallas/Fort Worth – Ontario, Canada: Mississauga (a Canada Post facility)
- 13. IKEA
- 14. Information • Information decisions – Push vs. Pull – Coordination and information sharing – Forecasting and aggregate planning – Enabling technologies • Metrics – Forecast horizon – Forecast errors – Ratio of demand variability and order variability Accurate information helps both efficiency and responsiveness How does Wal-Mart use information to improve its supply chain operations? Corporate Strategy Competitive Strategy Supply Chain Strategy Efficiency Facilities Inventory Transportation Information Sourcing Pricing Responsiveness
- 15. Information
- 16. Sourcing • Sourcing decisions – In-House or outsource – Supplier selection • Metrics – Days payable outstanding – Purchase price statistics – Purchase quantities – Fraction on-time deliveries – Supply quality and lead-time Overall tradeoff: Increased supply chain profit versus additional risk Corporate Strategy Competitive Strategy Supply Chain Strategy Efficiency Facilities Inventory Transportation Information Sourcing Pricing How does Dell use sourcing to improve efficiency? Responsiveness
- 17. Pricing • Pricing decisions – Pricing and economies of scale – Everyday low pricing versus high-low pricing – Fixed price versus menu price • Metrics – Profit margin – Average sale price – Average order size – Incremental fixed cost per order – Incremental variable cost per unit Overall tradeoff: Increase company profits How can Peapod use pricing of its delivery services to improve profitability? Corporate Strategy Competitive Strategy Supply Chain Strategy Efficiency Facilities Inventory Transportation Information Sourcing Pricing Responsiveness
- 18. Designing a Supply Chain Network In designing a supply chain, we need to consider how all supply chain drivers should be used together to support the competitive strategy of a company and maximize supply chain profits Corporate Strategy Competitive Strategy Supply Chain Strategy Responsiveness Efficiency Facilities Inventory Transportation Information Sourcing Pricing
- 19. From Strategy to Decisions Corporate Strategy Competitive Strategy Supply Chain Strategy Responsiveness Efficiency Facilities Inventory Transportation Information Sourcing Pricing Logistical drivers Cross functional drivers
- 20. The Role of Distribution in the Supply Chain • What is distribution? – Distribution refers to the steps taken to move and store a product from the supplier stage to the customer stage in a supply chain • Distribution-related cost – Make up about 10.5% of the US economy – Make up about 20% of the cost of manufacturing Distribution can achieve supply chain objectives from low cost to high responsiveness
- 23. The Role of Distribution in the Supply Chain What differences in the retail environment may justify the fact that the fast-moving consumer goods supply chain in India has far more distributors than in the United States?
- 24. Distribution Complexity in India • Dispersed population – 30+ cities have populations of more than 1 million, but nearly 70% still live in rural areas • Retail density – More than 12 million retail outlets – Mom-and-pop stores account for more than 96% of the total market for many markets, organized retail represents only 4% • Infrastructure complexity – Very few full-service distribution companies operate in India – Some consumer multinational companies work with more than 1,000 distributors, which deliver its products to more than 1 million outlets across India
- 27. Distribution Complexity in India • India is becoming one of the world’s largest markets for consumer goods – Rapidly rising household incomes – One quarter of India’s population is between 20 and 35, a high spending segment in many markets – Overall retail market is more than $230 billion (2005) and expected to grow to $308 billion (2010) Wal-Mart is teaming up with Bharti to establish wholesale and supply chain operations in India
- 28. The Role of Distribution in the Supply Chain • What is distribution? – Distribution refers to the steps taken to move and store a product from the supplier stage to the customer stage in a supply chain • Distribution-related cost – Make up about 10.5% of the US economy – Make up about 20% of the cost of manufacturing Distribution can achieve supply chain objectives from low cost to high responsiveness
- 29. Response Time and Number of Facilities Number of Facilities Response Time
- 30. Facility Cost and Number of Facilities Number of Facilities Facility Costs
- 31. Inventory Cost and Number of Facilities Number of Facilities Inventory Costs
- 32. Transportation Cost and Number of Facilities Number of Facilities Transportation Costs
- 33. Total Logistics Costs Inventory Costs Logistics Costs Number of Facilities Transportation Costs Facility Costs Logistics Costs
- 34. Logistics Costs, Response Time and Number of Facilities (Fig 4.5) Number of Facilities Response Time Total Logistics Cost
- 35. Design Options For a Distribution Network • Two key decisions when designing a distribution network – Will the product be delivered to the customer location or picked up from a preordained site? – Will product flow through an intermediary?
- 36. Design Options For a Distribution Network 1. Manufacturer Storage with Direct Shipping 2. Manufacturer Storage with Direct Shipping and In-Transit Merge 3. Distributor Storage with Carrier Delivery 4. Distributor Storage with Last Mile Delivery 5. Manufacturer or Distributor Storage with Consumer Pickup 6. Retail Storage with Consumer Pickup
- 37. Manufacturer Storage with Direct Shipping (Drop Shipping) • 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 • Example: eBags Retailer Manufacturers Consumers
- 38. Manufacturer Storage with Direct Shipping and In-Transit Merge • Shipments from multiple manufactures are merged before making a single delivery to the consumer • Shipments to Mergers are larger so economies of scale is achieved • Mergers increase facility costs • Response time may go up • Example: – Furniture retailers merge couches and coffee tables produced by different manufacturers – Dell merges a Dell PC with a Sony flat screen Retailer Mergers Consumers Manufacturers
- 39. Distributor Storage with Carrier Delivery • 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 • Example: Amazon Distributor Warehouse Manufacturers Consumers Distributor Warehouse
- 40. Distributor Storage with Last Mile Delivery • Warehouse delivers to customers instead of carrier – Warehouses are located closer to consumers – Transportation costs go up because warehouses are not as effective as package carriers in aggregating loads to have economies of scale • Warehouse may need to own a trucking fleet so the physical infrastructure costs are higher. – Products must be flowing fast to justify the infrastructure – Processing cost are high • Example: Milk delivery, Grocery delivery (Peapod, Albertsons), Denver Mattress Distributor Warehouse Manufacturers Consumers Distributor Warehouse
- 41. Manufacturer or Distributor Storage With Customer Pickup • Customers come to pick up sites (warehouse, retailer) to get the products – If consumers are willing to pick up the products, let them do so. Otherwise, they would be charged for the delivery costs • Order tracking is crucial. Consumers must be alerted when their order is ready for pick up. Once a consumer arrives at the pick up site, the products must be quickly located. • Significant amount of information is required • Increased handling cost • Example: 7dream.com Distributor Warehouse Manufacturers Consumers Distributor Warehouse
- 42. Retail Storage with Customer Pickup • 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 • Example: Retail stores such as Wal-Mart and JCPenney Retailer Manufacturers Consumers Retailer Retailer
- 43. Comparing Distribution Networks Retail storage with customer pickup Manufacturer storage with direct shipping Manufacturer storage with in transit merge Distributor storage with package delivery Distributor storage with last mile delivery Manufacturer storage with customer pickup Reponse time 1 4 4 3 2 4 Product variety 4 1 1 2 3 1 Product availability 4 1 1 2 3 1 Cusomter experience 1-5 4 3 2 1 5 Time to market 4 1 1 2 3 1 Order visibility 1 5 4 3 2 6 Returnability 1 5 5 4 3 2 Inventory 4 1 1 2 3 1 Transportation 1 4 3 2 5 1 Facility and handling 6 1 2 3 4 5 Information 1 4 4 3 2 5 1 = strongest performance 6 = weakest performance
- 44. Comparing Distribution Networks Green = very suitable Red = very unsuitable Retail storage with customer pickup Manufacturer storage with direct shipping Manufacturer storage with in transit merge Distributor storage with package delivery Distributor storage with last mile delivery Manufacturer storage with customer pickup High demand Medium demand Low demand Very low demand Many sources High product value Quick response High product variety Low customer effort Retail storage with customer pickup Manufacturer storage with direct shipping Manufacturer storage with in transit merge Distributor storage with package delivery Distributor storage with last mile delivery Manufacturer storage with customer pickup High demand Medium demand Low demand Very low demand Many sources High product value Quick response High product variety Low customer effort
- 45. From brick-and-mortar to click-and- mortar Is e-business likely to be more beneficial in the early part or the mature part of a product’s life cycle? In the future, do you see the number of distributors decreasing, increasing, or staying about the same? Why should an e-business such as Amazon.com build more warehouses as its sales volume grows? What has been the impact of e-business on supply chain cost? What has been the impact of e-business on customer service?
Editor's Notes
- #3: To understand how a company can improve supply chain performance in terms of responsiveness and efficiency we must examine (and make decisions about) the logistical and cross-functional drivers of supply chain performance
- #19: To understand how a company can improve supply chain performance in terms of responsiveness and efficiency we must examine (and make decisions about) the logistical and cross-functional drivers of supply chain performance
- #25: Warehouse in Baddi Cross state borders and checkpoints Main distributor Smaller shipments are transported to district headquarters (smaller distribution centers) Village retailer order and transport the goods via state bus or a bullock cart
- #32: Includes both inbound and outbound transportation cost If the number of facilities is increased to a point where inbound lot sizes are very small and result in a significant loss of economies of scale in inbound transportation, increasing the number of facilities increases total transportation cost
- #33: Each company should have at least the number of facilities that minimize total logistics costs
- #34: When a company wants to reduce the response time, it may have to increase the number of facilities beyond the point that minimizes logistics costs
- #37: This model is also referred to as drop-shipping. Retailers carries no inventory. All inventory is at the manufacturer’s site. This is eBags model, which takes orders and arranges for the manufacturer’s to ship directly to the customers. Transportation cost is high because the average outbound distance to the end customer is large. Package carriers are used and are more expensive than TL or LTL. A good information infrastructure is needed. Response time tends to be large. eBags Nordstrom.com (for slow moving footwear) W.W. Grainer (for slow moving items)
- #45: Impact of e-business on customer service Response time to customers Longer for products that cannot be downloaded Product variety Easier to provide a larger product variety Product availability Aggregation of inventory allows for improved availability Customer experience Much broader reach Time to market Easier to introduce new products quickly Returnability Cost of reverse flows increases Impact of e-business on supply chain cost Inventory An e-business requires less inventory due to aggregation Postponement can lower inventory cost Facilities An e-business requires less facilities because of centralizing operations Reduced handling costs because fewer intermediaries are used Transportation Apart from digital products an e-business tends to have higher transportation cost (across the entire supply chain) Information Significant information infrastructure is needed