OM
CHAPTER 9
SUPPLY CHAIN DESIGN
DAVID A. COLLIER
AND
JAMES R. EVANS
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©2009 South-Western, a part of Cengage Learning
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Chapter 9 Learning Outcomes
learning outcomes
LO1 Explain the concept of supply chain management.
LO2 Describe the key issues in designing supply chains.
LO3 Explain important factors and decisions in locating
facilities.
LO4 Describe the role of transportation, supplier
evaluation, technology, and inventory in supply
chain management.
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Chapter 9 Supply Chain Design
atthews Novelties, Inc. produces a line of popular toys, many on
contract from movie studios and other entertainment companies.
Matthews Novelties just acquired ToyCo, a smaller company that
essentially owns the market for miniature cars and trucks. The VP of Operations
stated “Now that we’ve inherited ToyCo’s product line, we need to decide where to
produce them. As you know, our state-of-the art die-casting factory in Malaysia
operates at full capacity, and we have no room to expand the factory at the current
site and no available land adjacent to it. ToyCo has two factories—one in Thailand
and another in Malasia. Labor costs in Thailand are about half of what we
experience in Malaysia but their labor productivity is a lot lower. Our marketing
people have also told us that the demand in Asia is increasing rapidly.” One senior
manager noted, “We shouldn’t just make this decision on labor economics. What
are building costs? What about housing and dormitory availability and education
programs for employees? Do we have accurate demand forecasts? Where are the
suppliers located? What regulations and restrictions do we face? How stable is their
currency and political situation?”
What do you think? Suppose that you wanted to locate a café on your
college campus (other than in the typical student center). What factors might
you consider in selecting the location?
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Chapter 9 Supply Chain Design
• Supply Chain Purpose: The basic
purpose of a supply chain is to coordinate
the flow of materials, services, and
information along the elements of the
supply chain to maximize customer value.
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Chapter 9 Supply Chain Design
• Three Views of Value/Supply
Chains:
 Input/Output View (Exhibit 2.1)
 Pre- and Post-Services View
(Exhibit 2.3)
 Typical Goods-Producing Supply
Chain Structure (Exhibit 9.1)
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Exhibit 2.1
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The Value Chain – Input/Output View
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Exhibit 2.3
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Pre- and Postservice View of the Value Chain
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Exhibit 9.1
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Typical Goods-Producing Supply Chain Structure
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Chapter 9 Supply Chain Design
Understanding Supply Chains
• Supply chain m anagem ent is the
management of all activities that facilitate
the fulfillment of a customer order for a
manufactured good to achieve satisfied
customers at a reasonable cost.
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Chapter 9 Supply Chain Design
The Supply Chain Operations Reference (SCOR)
M odel is a framework for understanding the scope of
SCM based on five basic functions:
1. P lan: developing a strategy that balances resources
with requirements.
2. Source: procuring goods and services to meet
planned or actual demand.
3. M ake: transforming goods and services to a
finished state to meet demand.
4. Deliver: managing orders, transportation, and
distribution to provide the goods and services.
5. Return: customer returns, maintenance, dealing
with excess goods.
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Chapter 9 Supply Chain Design
The Value and Supply Chain and Dell
•
Dell sells highly customized personal computers, servers,
computer workstations, and peripherals.
•
Most computers are assembled only in response to
individual orders purchased through a direct sales model.
•
Dell’s value chain electronically links customers, suppliers,
assembly operations, and shippers.
•
Preproduction services focus on gaining the customer,
including corporate partnerships, technical support, and
strong supplier relationships.
•
Postproduction services focus on keeping the customer,
including billing, shipping, returns, and technical support.
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Exhibit 9.2
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A Value Chain Model of Dell, Inc.
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Chapter 9 Supply Chain Design
Designing the Supply Chain
• A contract m anufacturer is a firm that
specializes in certain types of goods-producing
activities, such as customized design,
manufacturing, assembly, and packaging, and
works under contract for end users.
• Some of the major global contract
manufacturers are Flextronics International
Ltd., Solectron, Jabil Circuit, Hon Hai Precision
Industrial, Celestica Inc., and Sanmina-SCI
Corporation.
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Chapter 9 Supply Chain Design
Designing the Supply Chain
• Outsourcing to contract manufacturers
can offer significant competitive advantages,
such as access to advanced manufacturing
technologies, faster product time-to-market,
customization of goods in regional markets,
and lower total costs resulting from economies
of scale.
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Chapter 9 Supply Chain Design
Designing the Supply Chain
• Efficient supply chains are designed for
efficiency and low cost by minimizing inventory
and maximizing efficiencies in process flow.
• Responsive supply chains focus on flexibility
and responsive service and are able to react
quickly to changing market demand and
requirements.
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Chapter 9 Supply Chain Design
Designing the Supply Chain
• A push system produces goods in advance of
customer demand using a forecast of sales and
moves them through supply chain to points of
sale where they are stored as finished goods
inventory.
• A pull system produces only what is needed at
upstream stages in the supply chain in response
to customer demand signals from downstream
stages.
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Exhibit 9.3
Supply Chain
Push-Pull Systems
and Boundaries
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Chapter 9 Supply Chain Design
Designing the Supply Chain
• P ostponem ent is the process of delaying
product customization until the product is closer
to the customer at the end of the supply chain.
• An example is a manufacturer of dishwashers
that would manufacture the dishwasher without
the door and maintain inventories of doors at
the distribution centers. When orders arrive,
the doors can be attached quickly and the unit
can be shipped. This would reduce inventory
requirements.
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Chapter 9 Supply Chain Design
• M ultisite m anagem ent is the process of
managing geographically dispersed serviceproviding facilities.
– McDonald's Corporation has over 30,000 stores
in 121 countries.
– Bank of America has over 16,000 ATMs and
5,700 branch banks in the United States.
– Federal Express operates over one million
drop-off mailboxes in 215 countries.
• Supply chains are vital to the operation of
multisite management organizations.
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Chapter 9 Supply Chain Design
Understanding and Measuring Supply Chain
Performance
• Supply chain metrics balance customer
requirements and internal supply chain efficiency.
• Delivery reliability is often measured by
perfect order fulfillment.
• Responsiveness is often measured by order
fulfillment lead time or perfect delivery fulfillment.
• Customer-related focus on the ability of the
supply chain to meet customer wants and needs.
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Chapter 9 Supply Chain Design
• The bullwhip effect results from order
am plification in the supply chain: a
phenomenon that occurs when each
member of a supply chain “orders up” to
buffer its own inventory.
• Many firms counteract this phenomenon
by modifying the supply chain
infrastructure and operational processes.
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Extra Exhibit
Order Amplification for HP Printers
Source: Callioni, Gianpaolo, and Billington, Corey, “Effective Collaboration,” OR/MS Today, October 2001, pp. 34–39.
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Chapter 9 Supply Chain Design
The Bullwhip Effect (continued)
• The time lags associated with information
and material flow cause a mismatch
between actual customer demand and the
supply chain’s ability to satisfy that
demand as each component of the supply
chain seeks to manage its operations from
its own perspective.
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Chapter 9 Supply Chain Design
Location Decisions in Supply Chains
•
Location decisions can have a profound effect on supply
chain performance and a firms’ competitive advantage.
•
The type of facility and its location affect the supply
chain structure.
•
Location decisions in supply and value chains are based
on both:
 economic (facility costs, operating costs, and
transportation costs) and
 non-economic (labor availability, legal and political
factors, community environment) factors.
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Exhibit 9.5
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Example Location Factors for Site Selection
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Chapter 9 Supply Chain Design
Location Decisions in Supply Chains
Four basic decisions:
• global (nation) location
• regional location
• community location
• local site location
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Chapter 9 Supply Chain Design
Center of Gravity Method
• The center of gravity m ethod
determines the X and Y coordinates
(location) for a single facility.
• Takes into account locations, demand, and
transportation costs to arrive at the best
location.
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Exhibit 9.6
OM, Ch. 9 Supply Chain Design
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Solved Problem. Taylor Paper Products Plant and
Customer Locations: Center of Gravity Method
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Exhibit Extra
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Excel Spreadsheet for Taylor Paper Products
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Chapter 9 Supply Chain Design
Other Issues in Supply Chain Management
Selecting Transportation Services
• Services include rail, motor, air, water, and
pipeline.
• Critical factors include speed, accessibility,
cost, and capability.
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Chapter 9 Supply Chain Design
Supplier Evaluation
• Many companies segment suppliers
based on their importance to the
business and manage them accordingly.
• Texas Instruments measures suppliers’
quality performance by parts per million
defective, on-time deliveries, and cost of
ownership.
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Chapter 9 Supply Chain Design
Technology
• Selecting the appropriate technology is
critical for both planning and design of
supply chains, as well as execution.
• Electronic data interchange and Internet
links streamline information flow between
customers and suppliers and increase the
velocity of supply chains.
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Chapter 9 Supply Chain Design
Inventory Management
• An efficient distribution system allows a
company to operate with lower inventory
levels, which reduces costs and provides
high levels of service to customers.
• Vendor m anaged inventory (VM I ) is
becoming a popular concept where the
vendor monitors and manages the
inventory for the customer.
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