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Supply Chain Design Chapter 10 Supply Chain Design Chapter 10

Supply Chain Design Chapter 10 - PowerPoint Presentation

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Supply Chain Design Chapter 10 - PPT Presentation

Copyright 2013 Pearson Education Inc publishing as Prentice Hall 10 0 1 What is Supply Chain Design Supply Chain Design Designing a firms supply chain to meet the competitive priorities of the firms operations strategy ID: 703060

000 supply pearson 2013 supply 000 2013 pearson education publishing prentice hall inventory chain copyright weeks average cost service

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Slide1

Supply Chain DesignChapter 10

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10- 0

1Slide2

What is Supply Chain Design?Supply Chain Design

Designing a firm’s supply chain to meet the competitive priorities of the firm’s operations strategy.

10- 02

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Slide3

Service/Product

Processes

Supply Chain

Link Services/Products

with Internal Processes

Link Services/Products

with External Supply Chain

Link Services/Products with Customers,

Suppliers, and Supply Chain Processes

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Creating an Effective Supply Chain

10- 0

3Slide4

Supply Chain Efficiency CurveCopyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10- 0

4

Total costs

Supply chain performance

New supply chain efficiency curve with changes in design and execution

Inefficient supply chain operations

Area of improved operations

Improve perform-ance

Reduce costs Slide5

Supply Chain Design PressuresDynamic sales volumesCustomer service levelsService/product proliferation

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 - 05Slide6

Service Supply ChainCopyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10- 0

6

Home

customers

Commercial

customers

Flowers-on-Demand florist

Packaging

Flowers:

Local/International

Arrangement materials

FedEx delivery service

Local delivery service

Internet

service

Maintenance servicesSlide7

Manufacturing Supply ChainCopyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10- 0

7

East Coast

West Coast

East Europe

West Europe

Retail

USA

Ireland

Distribution centers

Manufacturer

Ireland

Assembly

Poland

USA

Canada

Australia

Malaysia

Tier 3

Raw materials

Germany

Mexico

USA

China

Tier 2

Components

Germany

Mexico

USA

Tier 1

Major subassembliesSlide8

Inventory Measures

Average aggregate inventory value

=

+

Value of each unit of item

B

Number of units of item

B

typically on hand

Value of each unit of item

A

Number of units of item

A

typically on hand

Weeks of supply =

Average aggregate inventory value

Weekly sales (at cost)

Inventory turnover =

Annual sales (at cost)

Average aggregate inventory value

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 - 0

8Slide9

Example 10.1The Eagle Machine Company averaged $2 million in inventory

last year, and the cost of goods sold was $10 million.

The breakout of raw materials, work-in-process, and finished goods inventories is on the following slide.The best inventory turnover in the company’s industry is six turns per year. If the company has 52 business weeks per year, how many weeks of supply were held in inventory? What was the inventory turnover? What should the company do?

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 - 0

9Slide10

Example 10.1Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 - 10Slide11

Example 10.1

The average aggregate inventory value of $2 million translates into 10.4 weeks of supply and 5 turns per year, calculated as follows:

Weeks of supply =

Inventory turns =

=

10.4 weeks

$2 million

($10 million)/(52 weeks)

=

5 turns/year

$10 million

$2 million

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 -

11Slide12

Application 10.1

A recent accounting statement showed total inventories (raw materials + WIP + finished goods) to be $6,821,000. This year’s “cost of goods sold” is $19.2 million. The company operates 52 weeks per year. How many weeks of supply are being held? What is the inventory turnover?

Weeks of supply =

Average aggregate inventory value

Weekly sales (at cost)

=

=

18.5 weeks

$6,821,000

($19,200,000)/(52 weeks)

Inventory turnover =

=

2.8 turns

$19,200,000

$6,821,000

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 -

12Slide13

Financial measuresTotal revenueCost of goods sold Operating expensesCash flowWorking capital

Return on assets (ROA)Measures of Supply Chain Financial Performance

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 13Slide14

SCM Decisions Affecting ROACopyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10- 14

Return on assets (ROA)

Increase ROA with higher net income and fewer total assets

Total assets

Achieve the same or better performance with fewer assets

Working capital

Reduce working capital by reducing inventory investment, lead times, and backlogs

Fixed assets

Reduce the number of warehouses through improved supply chain design

Net income

Improve profits with greater revenue and lower costs

Total revenue

Increase sales through better customer service

Cost of goods sold

Reduce costs of transportation and purchased materials

Operating expenses

Reduce fixed expenses by reducing overhead associated with supply chain operations

Net cash flows

Improve positive cash flows by reducing lead times and backlogs

Inventory

Increase inventory turnoverSlide15

Inventory PlacementCentralized placementInventory pooling

Forward placementCopyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 - 15Slide16

What is Mass Customization?Mass customization

A strategy whereby a firm’s highly divergent processes generate a wide variety of customized services or products at reasonably low costs.

10- 16Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Slide17

Mass CustomizationCompetitive advantagesManaging customer relationshipsEliminating finished goods inventory

Increasing perceived value of services or productsSupply chain design for mass customizationAssemble-to-order strategyModular design

Postponement Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 10 -

17Slide18

Component

supplier

Standardized

component

inventory

Order based on forecast

Fabrication

Assembly

Customer

Customer order

Supply to

forecasted

demand

Supply as needed

Supply as

needed

Supply Chain Design for

Assemble-to-Order Strategy

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 -

18Slide19

Outsourcing Processes

Make-or-buy decision

Vertical integrationBackward integrationForward integrationOutsourcing

Offshoring

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 -

19Slide20

Outsourcing Decision FactorsComparative Labor CostsRework and Product ReturnsLogistics CostsTariffs and Taxes

Market EffectsLabor Laws and UnionsInternetCopyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 - 20Slide21

Outsourcing Potential PitfallsPulling the Plug too QuicklyTechnology TransferProcess Integration

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 - 21Slide22

Example 10.2Thompson manufacturing produces industrial scales for the electronics industry. Management is considering outsourcing the shipping operation to a logistics provider experienced in the electronics industry. Thompson’s annual fixed costs of the shipping operation are

$1,500,000, which includes costs of the equipment and infrastructure for the operation. The estimated variable cost of shipping

the scales with the in-house operation is $4.50 per ton-mile. If Thompson outsourced the operation to Carter Trucking, the annual fixed costs of the infrastructure and management time needed to manage the contract would be

$250,000

. Carter would charge

$8.50 per ton-mile

. What is the break-even quantity?

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 -

22Slide23

Example 10.2

Q

=

F

m

F

b

c

b

c

m

=

312,500 ton-miles

=

1,500,000 – 250,000

8.50 – 4.50

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 -

23Slide24

Strategic ImplicationsEfficient supply chains

Build-to-stock

Responsive supply chainsAssemble-to-orderMake-to-order

Design-to-order

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 -

24Slide25

EnvironmentsCopyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10- 25

Factor

Efficient Supply Chains

Responsive Supply Chains

Demand

Predictable, low forecast errors

Unpredictable, high forecast errors

Competitive priorities

Low cost, consistent quality, on-time delivery

Development speed, fast delivery times, customization, volume flexibility, variety, top quality

New-service/product introduction

Infrequent

Frequent

Contribution margins

Low

High

Product variety

Low

HighSlide26

Design FeaturesCopyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10- 26

Factor

Efficient Supply Chains

Responsive Supply Chains

Operation strategy

Make-to-stock or standardized services or products; emphasize high volumes

Assemble-to-order, make-to-order, or customized service or products; emphasize variety

Capacity cushion

Low

High

Inventory investment

Low; enable high inventory turns

As needed to enable fast delivery time

Lead time

Shorten, but do not increase costs

Shorten aggressively

Supplier selection

Emphasize low prices, consistent quality, on-time delivery

Emphasize fast delivery time, customization, variety, volume flexibility, top qualitySlide27

Job

Small Batch

Large Batch

Line

Continuous Flow

Process

Efficient Supply Chain

Responsive Supply Chain

Increasing supply chain flexibility

Increasing service/product volume

Service/Product Characteristics

Standardized

Customized

Supply Chain Design Link to Processes

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10-

27Slide28

Solved Problem A firm’s

cost of goods sold last year was $3,410,000, and the firm operates 52 weeks per year. It carries seven items in inventory: three raw materials, two work-in-process items, and two finished goods. The following table contains last year’s average inventory level for each item, along with its value.

a

.

What is the average aggregate inventory value?

b. How many weeks of supply does the firm maintain?

c. What was the inventory turnover last year?

Category

Part Number

Average Level

Unit Value

Raw materials

1

15,000

$ 3.00

2

2,500

5.00

3

3,000

1.00

Work-in-process

4

5,000

14.00

5

4,000

18.00

Finished goods

6

2,000

48.00

7

1,000

62.00

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 -

28Slide29

Solved Problem a.

Part Number

Average Level

Unit Value

Total Value

1

15,000

$ 3.00

=

2

2,500

5.00

=

3

3,000

1.00

=

4

5,000

14.00

=

5

4,000

18.00

=

6

2,000

48.00

=

7

1,000

62.00

=

Average aggregate inventory value

=

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 -

29Slide30

Solved Problem a.

$ 45,000

12,500

3,000

70,000

72,000

96,000

62,000

$360,500

Part Number

Average Level

Unit Value

Total Value

1

15,000

$ 3.00

=

2

2,500

5.00

=

3

3,000

1.00

=

4

5,000

14.00

=

5

4,000

18.00

=

6

2,000

48.00

=

7

1,000

62.00

=

Average aggregate inventory value

=

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 -

30Slide31

Solved Problem

b. Average weekly sales at cost = $3,410,000/52 weeks

= $65,577/week

Weeks of supply =

Average aggregate inventory value

Weekly sales (at cost)

=

=

5.5 weeks

$360,500

$65,577

c. Inventory turnover =

Annual sales (at cost)

Average aggregate inventory value

=

=

9.5 turns

$3,410,000

$360,500

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

10 -

31Slide32

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 32

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher.

Printed in the United States of America.