Chapter
12 Supply Chain Design
1. Creating an Effective Supply Chain
• Pressures to create an effective supply chain are
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• Three major areas of focus in creating an efficient supply chain include
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• Figure 12.2, “Supply Chain Efficiency” shows
the trade-offs between costs and performance.
• The challenge for the management of
inefficient supply chain operations is to
improve operations planning for the
current supply chain design, or to
improve the design of the supply
chain itself.
• Quantum leaps in efficiency and performance can be had with a better supply chain design,
including:
o Strategic options:
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o Logistic network options
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o Integration options
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o Sustainability options
2. Supply Chain for Services and Manufacturing
How is every firm or organization a member of some supply chain?
1. Services
2. Manufacturing
3. Measuring Supply Chain Performance
1. Inventory measures
a. Average aggregate inventory value
b. Weeks of supply
c. Inventory turnover
d. Application 12.1: Calculating Weeks of supply and Inventory turnover.
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?
=
=cost)(at salesWeekly
valueinventory aggregate Average
supply of Weeks
2. Financial measures
a. Total revenue
b. Cost of goods sold
c. Operating expenses
d. Cash flow
e. Working capital
f. Return on assets
4. Strategic Options for Supply Chain Design
1. Efficient supply chains
a. Works best in environments where
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b. Common Designs: There is one popular design for efficient supply chains.
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2. Responsive supply chains
a. Designed to react quickly in order to hedge against uncertainties in demand.
=turnoverInventory
b. Common Designs: There are three popular designs for responsive supply chains.
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c. Works best in environments where
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3. Design for efficient and responsive supply chains
a. Factors for efficient supply chains
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b. Factors for responsive supply chains
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5. Mass Customization
1. Competitive advantages
a.
b.
c.
2. Supply chain design for mass customization
a.
b.
c.
6. Outsourcing Processes
• Outsourcing
o Offshoring
o Benefits
o Pitfalls
1. Vertical integration
a. Backward integration—toward the sources of raw materials, parts, and services through
acquisitions.
b. Forward integration—acquires more channels of distribution.
2. Make-or-buy decision
a. Break-even analysis
• Example 12.2 Thompson manufacturing considers outsourcing the shipping
operations to Carter Trucking (a logistics provider).
Thompson’s annual fixed cost of the shipping operation
$1,500,000
Thompson’s estimated variable cost of shipping (per ton-mile)
$4.50
Carter Trucking management contract cost
$250,000
Carter Trucking charge per ton-mile
$8.50
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mb
bm
cc
FF
Q
ton-miles