Business operating management

Yuzhi Zhao

OM6_Collier_Evans_Ch06.pptx

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Supply Chain Design

COLLIER/EVANS

Operations + Supply Chain Management

LEARNING OUTCOMES, Part 1

Explain the concept of a global supply chain and describe the key design decisions

Describe the key trade-offs that managers must consider in designing supply chains, and how to evaluate outsourcing and offshoring decisions

Describe how Inditex/Zara designs and operates its supply chain

OM6 | CH7

LEARNING OUTCOMES, Part 2

Explain the types of decisions required and criteria used to locate facilities in supply chains, and be able to apply the center of gravity method

Explain how the transportation model can be used to help optimize costs in supply chains

OM6 | CH7

Supply Chain

LO 6-1

Key subsystem of a value chain that focuses on physical movement of goods and materials

Supports information through the supply, production, and distribution processes

OM6 | CH6

Multinational Enterprise

LO 6-1

Sources, markets, and produces goods and services in several countries as part of a global supply chain

Helps:

Minimize costs

Maximize profits, customer satisfaction, and social welfare

OM6 | CH6

Exhibit 6.1

Supply Chain Design Decisions

LO 6-1

EXHIBIT 6.1 Supply Chain Design Decisions

Strategy. What is our supply chain strategy to meet the slower growth of industrialized countries and more rapid growth of emerging economies while considering cultural differences?

Control. Do we centralize or decentralize control of the supply chain?

Location. Where do we locate facilities such as research and development offices, call centers, and warehouse and distribution centers in the supply chain to provide efficiencies and improve customer value?

Sustainability. How do we champion economic, environmental, and social sustainability goals and practices in global supply chains?

Technology. Do we share our technology and intellectual property with suppliers and partners in other countries? If so, how do we protect intellectual property, patents, and rights?

Digital content. How do we build and integrate digital content and e-commerce capabilities into goods and services and the supply chain?

Sourcing. From whom do we purchase raw materials, parts, and subassemblies?

Logistics and transportation. What transportation modes (i.e., ship, air, rail, or truck) should we use to maximize service and minimize costs?

Outsourcing. What supply chain activities do we keep in-house or outsource to suppliers (either domestically or abroad)? Do we outsource to contract manufacturers or use third-party logistics providers?

Managing risk. How do we address supply chain risks and disruptions? What is our risk mitigation plan?

Measuring performance. What performance metrics should we use in managing supply chains?

OM6 | CH1

Operational Structure

LO 6-1

Configuration of resources

Suppliers

Factories

Warehouses

Distributors

Technical support centers

Engineering design and sales offices

Communication links

OM6 | CH6

Supply Chain Design Trade-Offs, Part 1

LO 6-2

Designing supply chains that either provide high efficiency and low cost or provide agile responses

Efficient supply chains

Designed for efficiency and low cost by minimizing inventory and maximizing efficiencies in process flow

OM6 | CH6

Supply Chain Design Trade-Offs, Part 2

LO 6-2

Responsive supply chains

Focus on flexibility and responsive service and are able to react quickly to changing market demand and requirements

Choosing between push and pull systems

Push system

Produces goods in advance of customer demand using a forecast of sales

Moves goods through the supply chain to points of sale, where they are stored as finished-goods inventory

OM6 | CH6

Supply Chain Design Trade-Offs, Part 3

LO 6-2

Effective for consistent sales patterns with few distribution centers and products

Pull system

Goods are produced in upstream stages in the supply chain in response to customer demand signals from downstream stages

Effective when there are many production facilities, points of distribution, and products

Push–pull boundary

Point in the supply chain that separates the push system from the pull system

OM6 | CH6

Supply Chain Design Trade-Offs, Part 4

LO 6-2

Postponement

Process of delaying product customization until the product is closer to the customer at the end of the supply chain

OM6 | CH6

Acquisition of Business Processes and Functions

LO 6-2

Vertical integration

Process of acquiring and consolidating elements of a value chain to achieve more control

Backward integration

Acquiring capabilities toward suppliers

Forward integration

Acquiring capabilities toward distribution or customers

OM6 | CH6

Outsourcing

LO 6-2

Process of having suppliers provide goods and services that were previously provided internally

Many organizations use contract manufacturing as part of their outsourcing strategy

Contract manufacturer: Specializes in producing customized design, manufacturing, assembly, and packaging on a contract basis

OM6 | CH6

Advantages of Contract Manufacturing

LO 6-2

Access to advanced manufacturing technologies

Faster product time-to-market

Customization of goods in regional markets

Lower total costs resulting from economies of scale

OM6 | CH6

Third-Party Logistics (3PL) Providers

LO 6-2

Provide integrated services that include:

Packaging

Warehousing

Inventory management

Inbound or outbound transportation

Leverage business intelligence to create efficiencies and economies of scale in the supply chain

OM6 | CH6

Break-Even Analysis of Outsourcing Decisions, Part 1

LO 6-2

OM6 | CH6

Break-Even Analysis of Outsourcing Decisions, Part 2

LO 6-2

- Variable cost/unit if outsourced

FC - Fixed costs for in-house production

Q - Quantity produced (volume)

OM6 | CH6

Offshoring and Reshoring

LO 6-2

OM6 | CH6

Inditex/Zara

LO 6-3

Uses:

Pull system of supply chain design

Vertical integration in its supply chain

Proximity sourcing

High degree of supply chain control

Technology and business analytics

Supply chain risk management

Sustainability management

Performance measurement

OM6 | CH6

Exhibit 6.5

Inditex’s Global Value Chain

LO 6-3

OM6 | CH1

Location Decisions, Part 1

LO 6-4

Depend on determining the best network structures and geographical locations to:

Maximize service and revenues

Minimize costs

Significant in case large numbers of similar facilities are operated

Multisite management: Process of managing geographically dispersed service-providing facilities

OM6 | CH6

Location Decisions, Part 2

LO 6-4

Based on:

Economic factors

Facility costs, operating costs, and transportation costs

Noneconomic factors

Availability of labor, transportation services, and utilities

Climate, community environment, and quality of life

State and local legal and political factors

OM6 | CH6

Location Decision Process, Part 1

LO 6-4

Global location decisions

Involve evaluating:

Product portfolio

New market opportunities

Changes in regulatory laws and procedures

Production and delivery economics

Sustainability

Cost to locate in different countries

OM6 | CH6

Location Decision Process, Part 2

LO 6-4

Regional location decisions

Affected by:

Size of the target market

Locations of major customers and sources of materials and supply

Labor availability and costs

Degree of unionization

Land, construction, and utility costs

Quality of life

Climate

OM6 | CH6

Location Decision Process, Part 3

LO 6-4

Community location decisions

Depend on:

Managers’ preferences, community services and taxes, available transportation systems, banking services, and environmental impacts

Local site location decisions

Depend on:

Site costs, proximity to transportation systems, utilities, payroll and local taxes, sustainability issues, and zoning restrictions

OM6 | CH6

EPIC Framework

LO 6-4

Helps assess supply chain readiness through perspectives of economic (E), political (P), infrastructural (I), and competence (C)

Levels of maturity held by a geographic region is assessed with respect to the region’s ability to support supply chain activities

OM6 | CH6

Center-of-Gravity Method, Part 1

LO 6-4

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

Used to locate service facilities

OM6 | CH6

Center-of-Gravity Method, Part 2

LO 6-4

Determined by

Cx= ΣXiWi/ΣWi

Cy= ΣYiWi/ΣWi

Where

Cx - x coordinate of the center of gravity

Cy - y coordinate of the center of gravity

Xi - x coordinate of location i

Yi - y coordinate of location i

Wi - Volume of goods and service moved to or from location i

OM6 | CH6

Supply Chain Optimization

LO 6-5

Process of ensuring that a supply chain operates at the highest levels of efficiency and effectiveness

Includes minimizing the total costs of manufacturing and transportation

Transportation problem

Linear optimization model that helps plan the distribution of goods and services from supply points to demand locations

OM6 | CH6

KEY TERMS, Part 1

Multinational enterprise

Operational structure

Efficient supply chains

Responsive supply chains

Push system

Pull system

Push-pull boundary

Postponement

Vertical integration

Backward integration

Forward integration

Outsourcing

Contract manufacturer

Third-party logistics (3PL) providers

Offshoring

OM6 | CH7

KEY TERMS, Part 2

Reshoring

Multisite management

Center-of-gravity method

Supply chain optimization

Transportation problem

OM6 | CH7

SUMMARY

Modern technology and distribution help supply chains span international boundaries

Supply chains are designed keeping in view strategic trade-offs

Regional, Global, community, and local site decision influence location decisions

Transportation problem helps satisfy destination demands

OM6 | CH7

4LTR Press

OM6 | CH7