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8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserve Coordinating the Supply Chain Chapter 8

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Page 1: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-1McGraw-Hill/IrwinOperations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Coordinating the Supply

Chain

Chapter 8

Page 2: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-2

Supply Chain Strategy Questions How does a company determine where to locate inventory and what

inventory service levels to support, and how do these inventory decisions support strategy?

How do decisions in transportation and distribution, flow patterns with suppliers and distributors, and other related questions affect the strategic position of the firm?

Can the outcomes of the decisions improve a company’s cost, quality, availability, features/innovativeness, or environmental performance?

How do supply chain decisions affect availability and the sub dimensions of availability such as lead times, breadth of product line, and so on?

What are the trade-offs inherent in the logistics and supply chain system? For example, is there a trade-off between cost and service?

What are the key factors in general that dictate logistics and supply chain design?

Which factors support strategies such as customization or rapid or direct delivery?

Page 3: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-3

Supply chain decisions

Inventory position Inventory levels Planning and materials Forecasting and demand management Transportation choices Reverse logistics Supplier selection and coordination Structure – Number of facilities, number of

stages Distribution flow Possible customization point (push-pull)

Page 4: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-4

Supply Chain Decisions: Pitfalls

Lead timesOffshore sourcing and productionLack of visibilityMultiple moves

Page 5: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-5

Supply chain choicessource: HP

Power supplies

DistributionCenters

CustomersFactories

Chassis

EU

Suppliers

NA

Others . . . LA

Motherboards AP?

Page 6: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-6

Some approaches

Input and output framework Structure based on key parameters Using IT Leveraging capabilities

Postponement and customizationRapid response and direct delivery

Page 7: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-7

Tools for Supply Chain Decisions: Input and Output Framework

Subcategories of availabilityDelivery or service timeService levelVariation of service level of delivery

timeCustomization and breadth of product

line or service

Page 8: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-8

Tools for Supply Chain Decisions: Input and Output Framework

N denotes neutral, arrows denote effect

Page 9: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-9

Tools for Supply Chain Decisions: Inventory position as an input

Buffer before the high value-added steps

Buffer after variable lead timesBuffer before significant increases in

product variety

Page 10: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-10

Tools for Supply Chain Decisions: Cost-Service Trade-offs

Page 11: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-11

Tools for Supply Chain Decisions: Cost-Service Trade-offs

Page 12: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-12

Tools for Supply Chain Decisions: Cost-Service Trade-offs

Page 13: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-13

Tools for Supply Chain Decisions: Matching Structure to Product and Market Characteristics

Factors in determining the type of logistics and supply chain strategy that might be appropriate: Magnitude of transportation costs Demand uncertainty Product variety

Page 14: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-14

Approaches for Managing the Supply Chain: Using IT

Causes of the bullwhip effect Demand forecasting updating or filling the pipeline Order batching Price fluctuation Rationing and shortage gaming Decentralized policies

Page 15: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-15

Approaches for Managing the Supply Chain: Using IT

Managing the bullwhip effectForecasting improvementsStructural approaches

IncentivesAlignment of metricsPricing

Coordination of centralization of information and policy

Supply chain visibility

Page 16: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-16

Approaches for Managing the Supply Chain: Postponement and Customization

Page 17: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-17

Approaches for Managing the Supply Chain: Postponement and Customization

Page 18: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-18

Approaches for Managing the Supply Chain: Implementing Externally Based Postponement Systems

What factors determine whether a push-pull system or an externally based postponement system can work and how well it can work? Assembly or configuration capacity Assembly or configuration lead time Assembly modularity Value added at distribution Demand uncertainty Product variety and product proliferation Economical delivery costs and value density

What are the factors that dictate the location of the boundary or delimiter? Product proliferation Lead time Value added Variability of lead time

Page 19: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-19

Approaches for Managing the Supply Chain: Rapid Response and Direct Delivery

Page 20: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-20

Rapid Response: Trends both create great opportunities but also great pitfalls

Great opportunities in technologies such as auto ID tags and IT linkages

More opportunities for customization and direct delivery (despite last mile)

Lower Costs of ScopeMore Capabilities and Lower Costs of Information TechnologyChanging Economics of TransportationBetter Material Handling Capability

Complexities such as multiple moves and long lead times and resulting disasters

Poor coordination and visibility despite technology (the beer game and bullwhip)

Page 21: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-21

Example of Leveraging capabilities: The Storefront Concept

Sales Service Parts Demonstration merchandise Inventory Customer contact

There is no reason why these cannot be separated

The storefront is based on the notion that the retailing or dealer aspect of a distribution chain performs many functions

Page 22: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-22

The Approach was implemented at Union Carbide’s Packaged Gas Business

Carbide delivers cylinders of gas (or bulk gas) and supplies to branches from plants.

Carbide converted some branches to storefronts - Customer contact points and “walk-in” service points.

The service was still the same. The economics was an elimination of three steps out of five.

1 - Filling and Storing cylinders and parts centrally

2 - Loading cylinders and parts on trailers and delivering them to branches

3 - Unloading and storing cylinders and parts at branches.

4 - Warehousing and handling

5 - Loading parts and cylinders on truck routes and delivering them to customers

Page 23: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-23

Page 24: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-24

The most profound example is for the car companies

Why do dealers need to be sales offices, service centers and inventory locations?

Distribution and inventory can be centralized

Sales can be decentralized and established on a different scale

In addition, the other parts of the business can establish new service entities

Page 25: 8-1 McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Coordinating the Supply Chain Chapter 8

8-25

Supply Chain Strategy: Steps to Developing

Operations strategy and supply chain choices

Mapping and supply chain toolsFeasibility of postponement and

other approaches Inventory and supply chain analysisCost-service trade-offsFinalize the strategy


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