Business & Finance Productions and Operations Assignment

SharonS8

SupplyChainDesignPart2CenterofGravityMethodandSupplyChainDesignTradeoffs.pdf

Home >Business & Finance homework help >Business & Finance Productions and Operations Assignment

Supply Chain Design

Part Two

Prof. Fiyinfoluwa Abioye

Bowie State University

©2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Content

• Supply Chain Design Trade-Offs

• Location Decisions

• Supply Chain Optimization

Supply Chain Design Trade-Offs

Efficient and Responsive Supply Chains

Supply chains can be designed from two strategic perspectives: providing high efficiency and low cost, or providing agile response. Efficiency supply chains are designed for efficiency and low cost by minimizing inventory and maximizing efficiencies in process flow. A focus on efficiency works best for goods and services with highly predictable demand, stable product lines with long life cycles that do not change frequently, and low contribution margins.

On the other hand, responsive supply chains focus on flexibility and responsive service and are able to react quickly to changing market demand and requirements. A focus on flexibility and response is best when demand is unpredictable, product life cycles are short and change often because of product innovations, customers require customization, and contribution margins are high.

Push and Pull Systems

A push system produces goods in advance of customer demand using a forecast of sales and moves them through the supply chain to points of sale, where they are stored as finished-goods inventory. Advantages of a push system include immediate availability of goods and reduced transportation costs. One disadvantage of a push system is that extra costs can be incurred due to excessive stock or out-of-stock conditions. Push systems work best when sales patterns are consistent and when there are few distribution centers and products.

A pull system produces only what is needed at upstream stages in the supply chain in response to customer demand signals from downstream stages. This minimizes inventory and production costs. Pull systems generally reduce the chances of having excessive inventory but can result in shortages if customer demand suddenly increases or if schedules are missed. Pull systems are more effective when there are many production facilities, many points of distribution, and many products.

Many supply chains are combinations of push and pull systems. This can be seen in Fig. 1. The point in the supply chain that separates the push system from the pull system is called the push- pull boundary. The location of the push-pull boundary can affect a supply chain’s responsivity. Many firms try to push as much of the finished product close as possible to the customer to speed up response and reduce work-in-process inventory requirements. Postponement is the process of delaying product customization until the product is closer to the customer at the end of the supply chain.

Fig. 1. Supply Chain Push-Pull Systems and Boundaries

Vertical Integration and Outsourcing

One of the most important strategic decisions a firm can make about its supply chain is whether to vertically integrate or outsource key business processes and functions. Vertical integration refers to the process of acquiring and consolidating elements of a value chain to achieve more control. Companies must decide to whether to integrate backward or forward or both. Backward integration refers to acquiring capabilities towards suppliers, whereas forward integration refers to acquiring capabilities toward distribution, or even customers.

Outsourcing is the process of having suppliers provide goods and services that were previously provided internally. Outsourcing is the opposite of vertical integration in the sense that the organization is shedding (not acquiring) a part of its organization.

Many supply chains use contract manufacturing for their outsourcing strategy. 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.

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. The main disadvantage of using a contract manufacturer is that the client firm gives up control and its technology to the contract manufacturer.

Offshoring and Reshoring

Offshoring is the building, acquiring, or moving of process capabilities from a domestic location to another country location while maintaining ownership and control. Offshoring differs from outsourcing in that the firm maintains ownership of the facility in another country.

Reshoring is the process of moving operations back to a company’s domestic location.

Location Decisions

Critical Factors in Location Decisions

Critical factors in location decisions include:

1. Location: Customer access, demand and markets, volume of traffic around location.

2. Transportation: Closeness to markets, closeness to sources of supply, costs of transportation.

3. Utilities: Waste disposal, water supply, power supply, local energy costs.

4. Climate, Community, Environment and Quality-of-Life: Housing and roads, climate and living conditions, health care facilities, cost of living.

5. State and Local Legal and Political Factors: Payroll taxes, tax incentives and abatements, health and safety laws, regulatory agencies and policies.

Location Decision Process

Facility location is typically conducted hierarchically and involves the following four basic decisions where appropriate.

Global Location Decision: The global location decision involves evaluating the product portfolio, new market opportunities, changes in regulatory laws and procedures, production and delivery economics, sustainability and the cost to locate in different countries.

Regional Location Decision: The regional location decision involves choosing a general region of a country. Factors that affect the regional decision include size of the target market, the 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; and climate.

Community Location Decision: The community location decision involves selecting a specific city or community in which to locate. In addition to the factors cited previously, a company would consider managers’ preferences, community services and taxes, available transportation systems, banking services, and environmental impacts.

Local Site Location Decision: The site location decision involves the selection of a particular location within the chosen community. Site costs, proximity to transportation systems, utilities, payroll and local taxes, sustainability issues, and zoning restrictions are among the factors to be considered.

The Center-of-Gravity Method

The center-of-gravity method determines the x and y coordinates for a single facility. The center- of-gravity method takes into account the locations of the facility and markets, demand, and transportation costs in arriving at the best location for a single facility.

It would seem reasonable to find some “central” location, between the goods-producing or service- providing facility and customers, at which to locate the facility. But distance alone should not be the principal criterion, as the demand from one location to another also affects the costs. To incorporate distance and demand, the center of gravity is defined as the location that minimizes the weighted distance between the facility and its supply and demand points.

The first step in the procedure is to place the locations of existing supply and demand points on a coordinate system. The origin of the coordinate system and scale used are arbitrary, as long as the relative distances are correctly represented. The center of gravity is determined by:

𝐶𝑥 = ෍ 𝑋𝑖𝑊𝑖 / ෍ 𝑊𝑖

𝐶𝑦 = ෍ 𝑌𝑖𝑊𝑖 / ෍ 𝑊𝑖

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 𝑜𝑟 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 𝑚𝑜𝑣𝑒𝑑

Supply Chain Optimization

Supply chain optimization is the process of ensuring that a supply chain operates at the highest levels of efficiency and effectiveness. This includes minimizing the total costs of manufacturing and transportation, which might consider sourcing distribution, and placement of inventory throughout the supply chain. Various optimization approaches are used to model complex transportation configurations and conduct “what-if” analyses to evaluate alternative supply chain strategies. Supply chain optimization models can become very complex and requires sophisticated software to solve large, practical problems.

Slide 1: Supply Chain Design Part Two
Slide 2: Content
Slide 3: Supply Chain Design Trade-Offs
Slide 4: Efficient and Responsive Supply Chains
Slide 5
Slide 6: Push and Pull Systems
Slide 7
Slide 8
Slide 9
Slide 10: Vertical Integration and Outsourcing
Slide 11
Slide 12
Slide 13: Offshoring and Reshoring
Slide 14: Location Decisions
Slide 15: Critical Factors in Location Decisions
Slide 16
Slide 17: Location Decision Process
Slide 18
Slide 19
Slide 20
Slide 21: The Center-of-Gravity Method
Slide 22
Slide 23
Slide 24
Slide 25: Supply Chain Optimization
Slide 26