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Chapters 2_3, September 8, 2015

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OUTLINE• Questions? Comments?

• Quiz

• Stories or experiences with supply chains?

• Chapter 2 and 3 (Chopra)

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Strategic Framework for Analyzing Supply Chains

• Chapter 2 – Performance

• (Chapter 3 – Drivers and Obstacles)

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Performance - Uncertainty

• Demand uncertainty – customers’ demand for a product

– What else is uncertain?

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Performance - Responsiveness

• Wide ranges of quantities

• Short lead times

• Large variety

• Innovation

• Service level – what do you think this means?

• Supply uncertainty

• Responsiveness comes at a cost

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Performance – Strategic fit

• Match the supply chain’s responsiveness to

the implied uncertainty of supply and demand

• Balance between responsiveness and

effectiveness (cost)

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Performance – Product Life Cycle

• Demand – uncertain to relatively certain

• Margins from high to low

• Availability essential early to capture the market

• Price – unimportant to important

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Performance – Inter-company Scope

• A strategic fit between companies in a supply chain is

important because competition is shifting:

– From company vs. company

– To supply chain vs. supply chain

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Definitions

• Facilities – places where product is

• Stored

• Assembled

• Fabricated

• Inventory –

• Raw materials

• Work in process (WIP)

• Finished goods (FG)

• Transportation

• Spares

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Definitions - continued

• Transportation – moving inventory from point to point

– Ground

» Road

» Rail

» Pipe line

» Barge

– Air

– Ship

• Information

– Data

– Analysis

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Barge transportation

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Southeastern Arizona – Galiuro Mountains

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Southeastern Arizona – El Paso to LA Pipeline

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El Paso to LA Pipeline - Station

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Framework

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Facilities

• Role in the chain – the where of the supply chain

• Role in the competitive strategy – Location, location, location

• Components of decisions

– Location

– Capacity

– Operational methods

– Warehousing methods

– Tradeoff: Responsiveness vs. Efficiency

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Inventory

• Role in the supply chain – alleviate mismatch between supply and

demand

– Increase demand that can be satisfied

– Exploit economies of scale

– Definitions:

» Material flow (Flow time) – elapsed time between material

entering the supply chain and exiting

» Throughput – rate at which material moves through the

chain

» Little’s law: Inventory = Throughput x Flow time

» Flow time is also called cycle time

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Inventory - continued

• Role in competitive strategy: responsiveness

• Components of inventory decisions:

– Cycle inventory – satisfies demand between

replenishments

– Safety Stock – protects against variations in demand

– Seasonal Inventory – built up to counter demand that

exceeds capacity

– Sources – from whom to buy (or make)

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Transportation

• Role: move material

• Role in competitive strategy: match required responsiveness

• Components of decisions:

– Mode (rail, truck, air, ship, pipeline, electronic)

– Route and network selection

– Sourcing

» Who provides transportation services?

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Information

• Role: connects the members of the chain and supports daily

operations

• Role in strategy: most important underpinning

• Components of decisions:

– Push/pull

– What to share

– Forecasting and planning

– Pricing

• Enabling technologies: Software (EDI, ERP, SCM)

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Obstacles

• Increasing variety

• Shorter life cycles

• Demanding customers

• Decreasing vertical integration

• Globalization

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“Mr. Osborne, may I be excused? My brain is full”