OM
CHAPTER 9
SUPPLY CHAIN DESIGN
DAVID A. COLLIER
AND
JAMES R. EVANS
OM, Ch. 9 Supply Chain Design
©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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©2009 South-Western, a part of Cengage Learning
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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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©2009 South-Western, a part of Cengage Learning
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Exhibit 2.1
OM, Ch. 9 Supply Chain Design
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The Value Chain – Input/Output View
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Exhibit 2.3
OM, Ch. 9 Supply Chain Design
©2009 South-Western, a part of Cengage Learning
Pre- and Postservice View of the Value Chain
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Exhibit 9.1
OM, Ch. 9 Supply Chain Design
©2009 South-Western, a part of Cengage Learning
Typical Goods-Producing Supply Chain Structure
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Chapter 9 Supply Chain Design
Understanding Supply Chains
• Supply chain management 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)
Model is a framework for understanding the scope of
SCM based on five basic functions:
1. Plan: developing a strategy that balances resources
with requirements.
2. Source: procuring goods and services to meet
planned or actual demand.
3. Make: 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
Designing the Supply Chain
• A contract manufacturer 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
• 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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Chapter 9 Supply Chain Design
Designing the Supply Chain
• Postponement 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
• Multisite management 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
amplification 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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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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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 method
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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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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©2009 South-Western, a part of Cengage Learning
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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 managed inventory (VMI) is
becoming a popular concept where the
vendor monitors and manages the
inventory for the customer.
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