Chapter
14 Supply Chain Integration
Think of a supply chain as a river that flows from raw material suppliers to customers.
1. Supply Chain Disruptions
1. Describe causes of supply chain disruptions
a. External causes
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b. Internal causes
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2. Supply Chain Dynamics
a. Bullwhip effect:
3. Integrated supply chain
a. External supply chain linkages
b. The SCOR model
2. Additive Manufacturing
Disruptive Technologies can change the existing approach to doing things. For example, Additive
Manufacturing (AM) uses 3D printers to fabricate objects.
1. Supply Chain Implications of AM
a.
b.
c.
d.
2. Enablers of Adopting AM
a.
b.
c.
d.
3. New Service or Product Development Process
Competitive priorities help managers develop services and products that customers want.
1. Design
2. Analysis
3. Development
4. Full launch
4. Supplier Relationship Process
1. Sourcing
a. Supplier selection
Material costs
Freight costs
Inventory costs
Administrative costs
• Application 14.1 Total Cost Analysis for supplier selection
ABC Electric Repair is a repair facility for several major electronic appliance
manufacturers. ABC wants to find a low-cost supplier for an electric relay switch
used in many appliances. The annual requirements for the relay switch (D) are
100,000 units. ABC operates 250 days a year. The following data are available for
two suppliers. Kramer and Sunrise, for the part:
Freight Costs
Shipping Quantity (Q)
Supplier
2,000
10,000
Price/Unit (p)
Carrying
Cost/unit (H)
Administrative
Costs
Kramer
$30,000
$20,000
$5.00
$1.00
$10,000
Sunrise
$28,000
$18,000
$4.90
$0.98
$11,000
Which supplier will provide the lowest annual cost?
Solution:
The daily requirements for the relay switch are:
_____/_____________ ==d
units
We must calculate the total annual cost for each alternative:
Total
annual
cost
=
Material
costs
+
Freight
costs
+
Inventory costs
+
Administrative
costs
=
pD
+
Freight
costs
+
( )
HLdQ +2/
+
Administrative
costs
Kramer
Q = 2,000:
_______$________)___(__))(_(_____/_____________)(_____)(__ =++++
Q = 10,000:
_______$________)___(__))(_(_____/_____________)(_____)(__ =++++
Sunrise
Q = 2,000:
_______$________)___(__))(_(_____/_____________)(_____)(__ =++++
Q = 10,000:
_______$________)___(__))(_(_____/_____________)(_____)(__ =++++
Conclusion:
Green purchasing
• When faced with multiple criteria in the supplier selection problem, management can
use a preference matrix as shown in Application 14.2.
• Application 14.2
ABC Electric Repair wants to select a supplier based on total annual cost, consistent
quality, and delivery speed. The following table shows the weights management
assigned to each criterion (total 100 points) and the scores assigned to each supplier
(Excellent = 5, Poor = 1).
Scores
Criterion
Weight
Kramer
Sunrise
Total annual cost
30
4
5
Consistent quality
40
3
4
Delivery speed
30
5
3
Which supplier should ABC select, given these criteria and scores?
Solution
Using the preference matrix approach, the weighted scores for each supplier are:
Kramer:
( ) ( ) ( )
___________________ =++=WS
Sunrise:
( ) ( ) ( )
___________________ =++=WS
Conclusion:
b. Supplier certification and evaluation
2. Design collaboration
3. Negotiation
a. Competitive orientation
• Sources of power
o
o
o
o
o
b. Cooperative orientation
• Sole sourcing
4. Buying
a. Electronic Data Interchange (EDI)
b. Catalog hubs
c. Exchanges
d. Auctions
e. Locus of control
5. Information exchange
a. Radio frequency identification (RFID)
b. Vendor managed inventories (VMI)
5. Order Fulfillment Process
How is the order fulfillment process linked to the customer relationship process?
Four nested processes:
1. Customer demand planning
2. Supply planning
3. Production
4. Logistics
a. Ownership
b. Facility location
c. Mode selection
d. Capacity
e. Cross-docking
• Application 14.3
Schneider Logistics Company has built a new warehouse in Columbus, Ohio, to facilitate
the consolidation of freight shipments to customer in the region. George Schneider must
determine how many teams of dock workers he should hire to handle the cross-docking
operations and the other warehouse activities. Each team costs $5,000 a week in wages
and overhead. Extra capacity can be subcontracted at a cost of $8,000 a team per week.
Each team, whether in-house or subcontracted, can satisfy 200 labor hours of work a
week. The labor hour requirements for the new facility are uncertain. Management has
estimated the following probabilities for the requirements:
Requirements (hours/wk)
200
400
600
Number of teams
1
2
3
Probability
0.20
0.50
0.30
How many teams should Schneider hire?
Solution
We use the expected value decision rule by first computing the cost for each option for
each possible level of requirements and then using the probabilities to determine the
expected value for each option. The option with the lowest expected cot is the one
Schneider will implement. We demonstrate the approach using the “one team” in-house
option.
One Team In-House
=
=
=
)600(
)400(
)200(
C
C
C
Expected Value
________$(_______)30.0(_______)50.0(______)20.0Team) (One =++=
Now complete table for two teams and three teams:
Weekly Labor Requirements
In-House
200 hrs
400 hrs
600 hrs
Expected value
One team
Two teams
Three teams
Conclusion:
6. Customer Relationship Process
What is the purpose of the customer relationship process?
1. Marketing
a. e-commerce
b. B2C
c. B2B
2. Order placement process
3. Customer service
7. Supply Chain Risk Management
1. Operational risks
2. Financial Risks
3. Security risks
4. Performance Measures