Transcript Traditional View: Logistics in the Manufacturing Firm

Figure 11.1
© 2011 Pearson Education, Inc.
publishing as Prentice Hall
Supply chain management is the
integration of the activities that procure
materials and services, transform them
into intermediate goods and final products,
and deliver them through a distribution
system
Competition is no longer between
companies; it is between supply chains
Important activities include determining
1. Transportation vendors
2. Credit and cash transfers
3. Suppliers
4. Distributors
5. Accounts payable and receivable
6. Warehousing and inventory
7. Order fulfillment
8. Sharing customer, forecasting, and
production information
Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
Procurement,
Manufacturing and
Replenishment cycles
PUSH PROCESSES
Customer Order
Cycle
PULL PROCESSES
Customer
Order Arrives
Operational Functions
 Forecasting demand
 Selecting suppliers
 Ordering materials
 Inventory control
 Scheduling production
 Shipping & delivery
 Information
management
 Quality management
 Customer service
Strategic Functions
 Chain structure
design
 Strategic
partnerships
 Make-or-buy
decisions






Wrong forecasts
Late deliveries
Poor quality
Machine breakdowns
Canceled orders
Erroneous information
Consumer Sales at Retailer
Retailer's Orders to Wholesaler
900
900
800
800
300
Wholesaler's Orders to Manufacturer
Manufacturer Order
1000
900
800
700
600
500
400
300
200
100
900
800
700
600
500
400
300
200
40
37
34
31
28
25
22
19
16
13
10
7
4
0
1
41
39
37
35
33
31
29
27
25
23
21
19
17
15
13
9
7
5
3
1
11
100
0
41
39
37
35
33
31
29
27
25
23
21
Manufacturer's Orders with Supplier
1000
Wholesaler Order
19
1
41
39
37
35
33
31
29
27
25
23
21
19
17
15
13
9
11
7
0
5
0
3
100
1
100
17
200
15
200
400
13
300
9
400
500
11
500
600
7
600
700
5
700
3
Retailer Order
1000
Consumer demand
1000
Performance Measure
Impact on Performance
Manufacturing Cost
Inventories
Lead Time
Transport Cost
Shipping & Receiving Cost
Customer Service Level
Profitability

Carry Just-in-Case inventory (often referred
to as safety stock)
◦ Expensive!

Rework the supply chain so that sources of
risk/uncertainty are reduced
◦ A couple of examples of how this has been done:
 Until two years ago, Dell did not include the
replenishment cycle in its supply chain structure and
all of its computers were BTO.
 Companies use RFID tags to keep track of inventory
throughout the supply chains
 Companies use Every-Day-Low-Pricing strategies to
reduce the bullwhip effect

Opportunities for effectively managing the supply chain by
reducing sources of uncertainty (reading assignment 3):
◦ Point of sales systems
◦ Single stage control of replenishment: Radio Frequency
Identification Tags
◦ Lot size reduction
◦ Postponement
◦ Drop shipping
◦ Blanket orders
◦ Vendor-managed inventory
◦ Standardization
Functional Products:
Detergent, Gas
Price
Innovative Products:
High Fashion, AppleWatch
Customer Need
Responsiveness
Low
High
Implied Demand Uncertainty

Responsiveness: the ability to
◦
◦
◦
◦
◦

Respond to wide ranges of quantities demanded
Meet short lead times
Handle a large variety of products
Build highly innovative products
Meet a very high service level
Efficiency:
◦ Minimize the cost of making and delivering a
product to the customer
Efficient Chain
Responsive Chain
Primary Goal
Low Cost
Quick Response
Pricing Strategy
Lower Margins
Higher Margins
Manufacturing
Strategy
High Utilization
Maintain Capacity
Flexibility
Inventory Strategy
Minimize Inventory
Maintain Safety
Inventory
Lead Time Strategy
Reduce if possible
Aggressively Reduce
Supplier Strategy
Select based on Cost
and Quality
Select based on Speed,
Flexibility and Quality
Transportation Strategy Low Cost Modes
Responsive Modes



Negotiate with many suppliers; play one
supplier against another
Develop long-term “partnering” arrangements
with a few suppliers who will work with you to
satisfy the end customer
Vertically integrate; buy the actual supplier

Company
◦ Financial stability
◦ Management
◦ Location

Product
◦ Quality
◦ Price

Service
◦
◦
◦
◦
Delivery on time
Condition on arrival
Technical support
Training
Tactic
Results

1. Reduce total number of
suppliers


Certify suppliers


Ask for JIT delivery from
key suppliers


Involve key suppliers in
new product design


Develop software linkages
to suppliers

Average 20% reduction in 5
years
Almost 40% of all companies
surveyed were themselves
currently certified
About 60% ask for this;
about 54% do this
Almost 80% claim to do this
About 50% claim this; about
15% more than have EDI
links to suppliers
Typical Firms
Benchmark
Firms
15
8
Time spent placing an order
42 minutes
15 minutes
Percentage of late deliveries
33%
2%
Percentage of rejected material
1.5%
.0001%
400
4
Lead time (weeks)
Number of shortages per year
Table 11.6
© 2011 Pearson Education, Inc.
publishing as Prentice Hall
 Assets committed to inventory
Percent
invested in
inventory
=
Total inventory
investment
x 100
Total assets
Investment in inventory = $11.4 billion
Total assets = $44.4 billion
Percent invested in inventory = (11.4/44.4) x 100 = 25.7%
Inventory as a % of Total Assets
(with exceptional performance)
Manufacturing
(Toyota 5%)
15%
Wholesale
(Coca-Cola 2.9%)
34%
Restaurants
(McDonald’s .05%)
2.9%
Retail
(Home Depot 25.7%)
27%
Table 11.7
© 2011 Pearson Education, Inc.
publishing as Prentice Hall