Operations and Supply Chain Management

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Logistics Management

Objective is to obtain efficient operations through the integration of all material acquisition, movement, and storage activities

Is a frequent candidate for outsourcing

Allows competitive advantage to be gained through reduced costs and improved customer service

Distribution Management

The outbound flow of products

Rapid response

Product choice

Service

Increasing the number of facilities generally improves response time and customer satisfaction

Total costs are important

Inventory costs

Transportation costs

Facility costs

Total logistics costs

Ethics and Sustainable Supply Chain Management

Personal ethics

Critical to long-term success of an organization

Supply chains particularly susceptible

Ethics within the supply chain

Ethical behavior regarding the environment

Establishing Sustainability in Supply Chains

Return or reverse logistics

Sending returned products back up the supply chain for resale, repair, reuse, remanufacture, recycling, or disposal

Closed-loop supply chain

Proactive design of a supply chain that tries to optimize all forward and reverse flows

Prepares for returns prior to product introduction

Measuring Supply-ChainPerformance

Assets committed to inventory

Home Depot had $12.5b inventory, total assets of $42.9b

Inventory as Percentage of Total Assets (with examples of exceptional performance)

Manufacturer (Toyota 5%)	15%
Wholesale (Coca-Cola 2.9%)	34%
Restaurants (McDonald’s .05%)	2.9%
Retail (Home Depot 25.7%)	27%

Measuring Supply-Chain Performance

Net revenue	Blank	$63.5
Cost of goods sold	Blank	$28.7
Inventory:	Blank	Blank
Raw material inventory	$1.32	Blank
Work-in-process inventory	$.15	Blank
Finished goods inventory	$1.26	Blank
Total inventory investment	Blank	$2.73

Measuring Supply-Chain Performance

Weeks of supply

For PepsiCo

Inventory investment = $2.73b

Average weekly cost of goods sold = $28.7b / 52 = $.55b

Weeks of supply = 2.73 / .55 = 4.96 weeks

Examples of Annual Inventory Turnover

Benchmarking the Supply Chain

Comparison with benchmark firms

Supply Chain Metrics in the Consumer Packaged Goods Industry

Blank	TYPICAL FIRMS	BENCHMARK FIRMS
Order fill rate	71%	98%
Order fulfillment lead time (days)	7	3
Cash-to-cash cycle time (days)	100	30
Inventory days of supply	50	20

Exercise:

Q1. A grocery chain is interested in exploring the impact effective supply chain management would have. Suppose that for every $1 of sales, 4% is profit, 50% is spent in the supply chain, and the remaining 46% is evenly divided between fixed and production costs. If the chain can save $1 in the supply chain it would take how many dollars of increased sales to have the same increase in profit? Assume that fixed costs are fixed so that the portion of increased sales allocated to fixed costs is instead profit (27% profit margin combined now).

Answer:

$3.70 of increased sales yields an additional $1 of profit

Exercise

Q2. A manufacturing plant averaged $540 of raw materials, $230 of work-in-process inventory, and $1230 of finished goods inventory during the month. If the cost of goods sold this month amounted to $12,000, what is the inventory turnover for the month?

Answer: 6

Exercise

Answer

(a) Percentage invested in inventory = ($150,000 + $50,000 + $330,000)/$1,170,000 = 45.30%

(b) Inventory turnover = $700,000/($150,000 + $50,000 + $330,000) = 1.32

Percentage

Average inventory investment

invested in100

Total assets

inventory

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Percentage

12.5

invested in100 29.1%

42.9

inventory

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28.7

Inventory

1 0.5

turnover

2.73

Cost of goods sold

Inventory

turnover

Average inventory investment

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Average inventory investment

Weeks of

supply

Annual cost of goods sold

52 weeks

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