Global Sourcing, or
“What’s a ‘Supply Chain?’”
Dr. Ron Lembke
Operations Management
Old View of the World
One company does all
processing, from raw
material through delivery
Supply Network View of the
World
• Integrated international networks
of companies process, produce
and distribute products.
Spring Hill, Tennessee
Saturn Layout
Computer Example
Wacker Siltronic makes silicon wafers:
buy sand
grow into long crystals
slice into thin wafers
Chip Production
Chip burned in a $2b “wafer fab”
Wafer cut into chips and
“packaged”
CD Drive
Chip stuffed onto board by
Flextronics, Celestica, etc.
CD drive assembled by
separate contract
manufacturer
Green Printed Circuit Board
from different supplier
CD drive, with a brand
name on it, sold to Gateway
SUPPLY CHAIN DESIGN
Supply Chain Design
Demand Uncertainty
Low
Efficient
Supply Low (stable)
Uncert. High (evolving) Risk-Hedging
High
Responsive
Agile
Efficient – economies of scale.
TP, toothpaste, landlines, routers
Responsive – Changing consumer needs, mass
customization, build-to-order
Computers, fashion apparel
Risk-Hedging – pooled resources, multiple sources
of supply, more inv., share inv., need good IT
Server parts, some ag products, power
Agile – responsive to changing needs, pooled
resources: Foxconn/Apple
Mass Customization
Dell perfected: exactly what you want,
how you want, cheaper than off the shelf
Highly customized
Integrate design, processes, supply network
Supply components cheaply to production
points
Fast, responsive production, quick
delivery
Higher value, lower weight
Managing the Supply Chain
Postponement -- withhold any
modification until as long as possible.
Keep product generic “vanilla”
HP
Benetton
Home Depot paint department
Channel Assembly -- have distributor
assemble products from components
HP Inkjet Printers
Printers made in Vancouver, sent via
ship through Panama Canal to Europe
Europe warehouse stocks inventory by
country
physically different-- power supply
manuals different languages
Substitution not allowed
Re-supply time very long
Euro Plugs
No standardized
power supplies
for Europe
Different power
supply for every
country.
HP Inkjet Printers
Redesigned printers so that power supply
added in Europe
Re-engineer product, power supply
Assembly done in a warehouse (Quality?)
Manuals added in Europe
Many expensive changes
Store ‘vanilla’ boxes
Postpone point of differentiation
25% cost reduction
Delayed Customization
Before
Production Storage
After
Shipping
Storage
Benetton
Sweaters of undyed wool, dyed once demand is
known
Dyeing LT much faster than production
How many undyed sweaters to make?
How many Red, Green, Blue, also, if this production
process is cheaper, and you know you’ll sell some
minimum amount?
Behr Paints
Small # of bases
Small # tints
Unlimited # combinations
Keep stock colors on hand?
How many gallons?
Which ones?
Lower labor costs
Higher inventory costs
Modular Components
Take advantage of modules: parts or
products previously prepared
Restaurants: prepared ingredients,
assembled to order
Suppliers can develop new, interesting
products to use more quickly, cheaply
Variety is gained by different
combinations of same components
Summary
What’s a Supply Chain?
Examples: Saturn, computer chips
Supply Chain design:
Efficient, Responsive, Risk-Hedging, Agile
Mass Customization
Postponement
HP, Benetton, Home Depot paint
Channel assembly