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TOC in Supply Chain Management

TOC in Supply Chain Management. Dr. James R. Holt, PE (Jonah-Jonah) Washington State University 14204 NE Salmon Creek Avenue Vancouver, WA 98686. The Supply Chain. Raw Materials. Refine / Prepare. Produce. Transport. Distribute. Retail. Customer. Short & Long Duration Chains.

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TOC in Supply Chain Management

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  1. TOC in Supply Chain Management Dr. James R. Holt, PE (Jonah-Jonah) Washington State University 14204 NE Salmon Creek Avenue Vancouver, WA 98686 HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  2. The Supply Chain Raw Materials Refine / Prepare Produce Transport Distribute Retail Customer HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  3. Short & Long Duration Chains Dairy Cows Creamery Deliver Retail Customer Farmer Cannery Wholesale Retail Customer HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  4. Complex Combinations Brakes Tires Bumpers Upholstery Engine Transmission Car Lot Car Lot Car Lot Manuf. Car HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  5. Dedicated Chain Mine Smelter Rolling Mill Product Steel Sales IndependentBusiness Unit IndependentBusiness Unit IndependentBusiness Unit Single Firm - Totally Owned Industry - Sole Source Transfer Prices Fixed by Policy HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  6. Competitive Link Opportunity Oil Well Refinery Chemical Plant Cloth Mill Dress Factory Customer Oil Well Refinery Chemical Plant Cloth Mill Customer Dress Factory Oil Well Refinery Chemical Plant Cloth Mill Customer Dress Factory Transfer Prices at Market Prices HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  7. Individual Member of Chain Independent Business Component Process Supplier Client Transactions Transactions PurchaseReceiveCheckPay Internal Processing SellDeliverInvoiceCollect Profit=Sales-Purchase-Inventory Cost-Overhead HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  8. Simple Dist. Chain Game My Plan for the Week The Actual for the Week 1. I Order Parts Parts Come In 2. Beginning Inv. Avail. Inventory Orders Rec’vd Product Flow Cash Flow Orders Filled Income @ $+50 Weekly Income Back Orders BO @ $ -50 3. 4. Remaining Inv. Inv. @ $ -10 $ HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  9. Simple Game Example My Plan for the Week The Actual for the Week 1. I Order Parts Parts Come In 5 5 2. Beginning Inv. 6 Avail. Inventory 11 Orders Rec’vd 4 Product Flow Cash Flow Orders Filled Income @ $+50 4 200 Weekly Income Back Orders BO @ $ -50 0 3. 4. Remaining Inv. 7 Inv. @ $ -10 -70 $ 130 HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  10. Black Bean Business HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  11. Generic Supply Chain Conflict To meet customer demands (next link in chain as well as the end customer) I need to keep a significant inventory. But, the cost of inventory deeply erodes my profits. Missing an order erodes my future profits. My forecasts are inaccurate and replenishment takes too long. I’m stuck between a rock and a hard place. Supply Quickly and Avoid Stock Outs (Back Orders) Maintain High Levels of Inventory We effectively meet our customer requests Minimize the Cost of Operation Maintain Low Levels of Inventory HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  12. Traditional Supply Chain Solution Raw Materials Produce Distribute Retail Customer HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  13. Typical Production Solution Raw Materials Machine 1 Machine 2 Machine 3 Warehouse HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  14. Difficulty in Forecasting HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  15. Potential Future HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  16. Adjusting for Product Life HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  17. Inventory Demand Probability 90% Sure Inventory Level 70 Mean 50Std Dev 10 HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  18. DBR Production Solution Constraint Buffer Protects Replenishment Shipping Buffer Protects Short Lead Demand Raw Materials Constraint Machine Warehouse Low inventory system is very responsive to customer needs. Low inventory system is product change. HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  19. Non-Cooperative Supply Chain Raw Material Produce Constraint Transport Distribute Customer Retail Watch Diligently Watch Diligently Supply Constraint Client Just-in-Time Production Using DBR HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  20. Reference Supply Chains Snow River Dam Generator Customer Power lines Water Well Water Treatment Distribution Water Tower Customer Local Lines HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  21. Cooperative Supply Chain Raw Material Produce Constraint Transport Distribute Customer Retail In the best world, individual business units cooperate and receive payment only when final customer pays.Inventory is greatly reduced. Quick delivery and response to change is possible. HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  22. How to…?Start with Two Before Watch Diligently Watch Diligently Watch Diligently Watch Diligently Supply Supply Constraint Client Constraint Client Firm 2 Firm 1 After Watch Diligently Watch Diligently Supply Supply Constraint Client Client Firm 2 Firm 1 HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  23. Transfer Costs in Cooperating Chains Cap. 40/wk Cap. 40/wk RM$20 Sell$100 TPM$60 Labor $10/hourOE $20/hour Labor $10/hourOE $20/hour Firm Total T= $3200Labor=$-800OE= $-1600Profit= $800 T= $1600Labor=$-400OE= $-800Profit= $400 T= $1600Labor=$-400OE= $-800Profit= $400 HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  24. Incentive to Switch Market 5ea @$70 Cap. 40/wk Cap. 40/wk RM$20 Sell$100 35@$60 Labor $10/hourOE $20/hour Labor $10/hourOE $20/hour Firm Total T= $3050Labor=$-800OE= $-1600Profit= $650 T= $1650Labor=$-400OE= $-800Profit= $450 T= $1400Labor=$-400OE= $-800Profit= $200 HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

  25. Cooperative Dedicated Sources Best Supplier60% of Orders Cap. 40/wk RM$20 Cap. 40/wk 35@$60 Sell$100 Cap. 40/wk RM$20 Lesser Supplier40% of Orders HTTP://WWW.CEA.WSU.EDU/ENGRMGT/

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