opsm 301 operations management class 21: supply chain strategy (selected sections chapter 8) koç...
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OPSM 301 Operations Management
Class 21:
Supply Chain Strategy(Selected sections Chapter 8)
Koç University
Zeynep Aksinzaksin@ku.edu.tr
First: Project management example
Activity Immediate Predecessor(s)
Normal Time (weeks)
Crash Time(weeks) Cost
($)
Crash Cost($)
A -- 6 -- 1200 --
B A 12 10 2200 4000
C A 20 16 3600 6000
D B,C 10 6 1300 2500
E B 8 4 6000 10000
F E 14 10 2600 7000
G D,F 12 8 1200 3000
H F,G 10 8 1500 4500
Crashing the project
The company wants to complete the project in 56 weeks. What is the least cost plan for crashing activities in order to complete the project in 56 weeks?
The Research and Development department of the company proposes a new process to perform activity G. The proposed process would eliminate the precedence relationship between activities F and G. That is, after the proposed process change is implemented, activity G will have activity D as its sole immediate predecessor. What is maximum amount of investment you would allocate for the implementation of this proposal if the objective of the company is to complete the project in 56 weeks?
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A Supply Chain
Figure 11.1Figure 11.1
Consumer
Retailer
Manufacturing
Material Flow
VISA®
Credit Flow
Supplier
Supplier Wholesaler
Retailer
CashFlow
OrderFlowSchedules
Flows in a Supply-Chain
Supply
Sources:plantsvendorsports
RegionalWarehouses:stocking points
Field Warehouses:stockingpoints
Customers,demandcenterssinks
Production/purchase costs
Inventory &warehousing costs
Transportation costs Inventory &
warehousing costs
Transportation costs
Example: Köşebaşı Restaurant [1]
1995: first restaurant opened in Levent: hosting Chelsea Clinton, Donna Karan, Warren Beatty, Annette Bening, and the international gourmet Tom Zagat .
1999: Köşebaşı is voted one of the 50 restaurants in the world by Conde Nast Traveler magazine. Second rest. In Fenerbahce.
2000: Köşebaşı received the 26th International Tourism, Lodging and Catering Association's award in Madrid.
2001: Köşebaşı Express concept 2002 Time: "Meat lovers can rejoice at Köşebaşı. Don't bother with
a mess, sit back and let your waiter make the choices”. New restaurants: Nişantaşı (2002), Ataşehir Köşebaşı Express
(2003), and Ankara (2004). Also in the summer, Köşebaşı serves in Reina and in Bodrum.
[1] www.kosebasi.com.tr
Köşebaşı Restaurant SC in the summer
Definition:
Supply Chain Management is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements.
Notice:– Who is involved– Cost and Service Level– It is all about integration
Supply Chain Management
Supply Chain Management: the challenge
Global optimization– Conflicting Objectives– Complex network of facilities– System Variations over time
Managing uncertainty– Matching Supply and Demand– Demand is not the only source of uncertainty
A Common Supply-Chain Performance Measure
Inventory Turnover =Cost of Goods Sold
Average Aggregate Inventory Value
Weeks of Supply =1
Inventory Turnover52 weeks
A Case Study- Dell Computer
From From Business WeekBusiness Week http://www.businessweek.com/1997/14/b3521131.htmhttp://www.businessweek.com/1997/14/b3521131.htm
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A Case Study- Dell Computer
Global Leader in PC market share (until 2007-Now second after HP, but still the leader in the US)
# 1 in most admired companies list in 2005
2005 figures: Return on Assets: 12.01% (vs 4.47% for HP) Profit margin: 6.39% (vs 3.05% for HP)
2008 figures: Return on Assets: 9.40% (vs. 7.49% HP) Profit margin:4.25% (vs 9.65% for HP)
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Dell Computer
In 1984, the dominant business model in computer industry was “vertical integration”, produce everything in house
Dell outsourced production of chips, monitors etc. and focused on creating value for the customer. Intensive use of internet and EDI technology—towards “virtual integration”
Main principle of the Dell model:– Eliminate the dealers and sell directly to the customer– Build to order and not carry finished goods inventory
Dell Computer
Summary of facts:
70% of the sales are to large corporate customers
Use electronic commerce for sales, marketing, ordering and billing
– $ 6 million a day in PCs on web site in 2004
Suppliers located within 15 minutes of plant in Round Rock, Texas
Flow time of about a day (not counting delivery time)
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Dell Computer Focus on “velocity”: how fast the inventory is
moving Inventory is a big risk in Computer industry
– Costs go down – by 50% in a year
– Products become obsolete
Dell’s Inventory Turnover Data Year Inventory Turnover Day'sInventory1995 9.8 351996 24.2 141997 41.7 8.51998 52.40 6.51999 52.40 6.52000 51.4 62001 63.50 5.52005 102.3 3.62006 88.8 4.12007 77.5 4.7
HP’s turnover: 9.75
Dell Computer
Inventory equivalent to 13 days of sales in 1997 (versus 25 days for Compaq) (reduced to about 4 days in 2004)– Little’s Law!
Can beat competitor’s prices by 10-15%
Dell Computer
Supplier Relationships: Reduced number of suppliers from 204 in 1992
to 47 in 1997– – Build long term relationships with suppliers– Buy everyday as needed, communicate inventory
levels and plans to the suppliers– When a new product is introduced, supplier engineers
stay within Dell plant to fix problems– For trusted suppliers, eliminate shipment to plant and
unnecessary double quality control
A Case Study -- Dell Computer
Caliber Logistics, Inc. manages a warehouse 15 minutes from plant– Vendor managed inventory (VMI): supplier is responsible for
the inventory in the warehouse, until it is used
– Caliber handles transportation– Dell is billed only when parts are used
Bar codes are used to manage inventory within assembly plant– Real-time management of inventory
Dell Computer
Video displays are shipped directly from the manufacturer– When order is approved by finance, e-mail is sent to a
3rd party shipper like UPS– Saves $30 per display in freight costs
Dell ComputerDisplay
Manufacturer
UPS
Customer
InformationProduct
1
43
2
Dell Computer
(Sony)
Dell Computer
Customer Relationships Assemble to order in the channel: a form
of postponement Direct model means being close to the
customer:– Get better information about the demand,
better forecast– Understand customer needs to design new
products and services that create value
How to choose the right supply chain?
Functional Product
Innovative Product
Product Life Cycle More than 2 years
3 months to 1 year
Contribution Margin 5% to 20% 20% to 60%
Product Variety Low (10-20 variants) High
Average Margin of Error in the Forecasts 10% 40% to 100%
Average Markdown 0% 10% to 25%
Average Stockout Rate 1% to 2% 10% to 40%
• Before devising a supply chain consider the nature of the demand for your products:
Supply Chain Types
Physically Efficient Market-Responsive
Primary Purpose Supply predictable demand at lowest cost
Respond quickly to unpredictable demand while controlling
stockouts, forced markdowns and obsolete inventory
Manufacturing Focus High Utilization Excess Capacity
Inventory Strategy High turns and minimum inventory through chain
Buffer stock of parts or finished goods
Lead-Time Focus
Shorten lead-times if it doesn’t increase cost
Shorten lead-times as much as possible
Supplier Choice On cost and quality On speed, flexibility, and quality
Product Design Maximixe performance, minimize cost
Modular design, postponement of differentitation for as long as
possible
Drivers of Supply Chain Performance
Efficiency Responsiveness
Inventory Transportation Facilities Information
Supply chain structure
Drivers
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