CHAPTER 10 SUPPLY CHAIN STRATEGY

1. CHAPTER 10SUPPLY CHAIN STRATEGY

2. Supply Chain Strategy • Supply chain management • Competitive advantage • Aligning product and supply chain strategy

3. Supply Chain • A supply chain represents all the stages at which value is added in producing and delivering a product or service from suppliers (and their suppliers) to customers (and their customers).

5. Supply Chain Management • Supply chain management is the coordination of the following functions and activities along the supply chain: • Planning and managing of supply and demand • Acquiring material • Warehousing • Inventory control and distribution • Producing and scheduling the product or service • Delivery and customer service

6. Supply Chain Database and Planning

7. Supply Chain Management and Competitive Advantage • Competitive advantage may be obtained with a total systems approach to managing flow of information, materials and services along the supply chain

9. Investment in Supply Chain • High profit margin (high tech products) • Reduce stockout • Invest in reducing lead time along the supply chain • Low profit margin (staple products) • Reduce cost • Increase resource utilization, minimize inventory, • select vendors on the basis of cost and quality, design products that can be produced

10. Matching Supply Chain with Products Functional Products Innovative Products Efficient Supply-Chain Match Mismatch Responsive Supply-Chain Mismatch Match

11. CHAPTER 11STRATEGIC CAPACITY MANAGEMENT

12. Strategic Capacity Management • Capacity • Planning issues • Capacity additions • Determining capacity requirements

13. Capacity • Output over a certain time period • Peak? Average? Design capacity? • Best operating level • Design capacity, minimum average cost • Capacity utilization

14. Planning Issues • Economies and Diseconomies of scale • Advantage and disadvantage of capacity • Learning curve • Another advantage of capacity • Focussed factories • A strategy to remove the disadvantage of capacity • Capacity flexibility • A strategy to deal with demand uncertainty

15. 250 room hotel 1000 room hotel 500 room hotel Economies and Diseconomies of Scale Average cost per unit Best operating level Best operating level Best operating level Economies of scale Diseconomies of scale

16. Learning Curve • An example of 80% learning curve • 1st unit 100 hours • 2nd unit 80 hours • 4th unit 64 hours Processing time per unit Units produced

17. Learning Curve Yx= Kxn where • x = Unit number • Yx= time required for the xth unit • K = time required for the first unit • n = log b/log 2, where b is the percentage rate of improvement

18. Learning Curve Contract to produce 35 computers • K = 18 hours • Learning rate = 80% • What is time for the 9th unit? 35 units? Y9 = (18)(9)log(0.8)/log(0.2) = (18)(0.493) (See Exhibit TN4.5, p. 138) = 8.874hrs Y1+…+Y35 = (18)(15.64) (See Exhibit TN4.6, p. 139) = 281.52hrs

19. Focussed Factories • Theory • A production facility is the most efficient when it concentrates on a fairly limited set of tasks objectives • An implication • Instead of building one huge plant, build several smaller plants • An example • Plant 1: Production of components • Plant 2: Assembly

20. Capacity Flexibility: Flexible Workers Machines Enter Worker 2 Worker 3 Worker 1 Exit Key: Product route Worker route

21. Capacity Flexibility: Flexible Machine • Many tools in the tool magazine • Tools are changed instantaneously • Thus, products with different designs are produced without long setup times A CNC Hobbing Machine

22. Capacity Additions • Maintaining system balance • Frequency of capacity additions • Too frequent: installation, training, premium for up to date technology, loss of production time • Too infrequent: cost of excess capacity • External sources of capacity • Subcontracting • Capacity sharing

23. To customers To customers Inputs Inputs 1 2 3 1 2 3 200/hr 200/hr 200/hr 200/hr 200/hr 50/hr (b) All operations bottlenecks (a) Operation 2 a bottleneck Maintaining System Balance

24. Capacity Expansion Strategies Lead strategy Lag strategy Capacity Units Units Demand Time Time Add average Units Demand Time

25. Determining Capacity Requirements • Estimate capacity requirements • Identify gaps • Develop alternatives • Evaluate the alternatives • Decision tree is a tool used to evaluate alternatives

26. A Decision Tree Example Text Chapter 11 Problem 5 • Expando Inc. is considering the possibility of building a facility. • Small facility: costs $8 million. If demand is low, revenue will be $10 million. If demand is high revenue will be $12 million. • Large facility: costs $9 million. If demand is low, revenue will be $10 million. If demand is high revenue will be $14 million. • The probability of demand being high is 0.40 and the probability of it being low is 0.60 • Not constructing a new facility would not generate any additional revenue.

30. Build the small facility with expected value = $2.8 million

31. Reading and Exercises • Chapter 10 (Supply Chain Strategy) • up to p. 413 • Chapter 11 (Strategic Capacity Management) • up to p. 440 • Problem 6 • Technical Note 4 (Learning Curves) • up to p. 141 • Problems 1,4