Supply Chain anagement
K02 2/7 Planning, and Operation
_ SEVENTH EDITION
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Trang 2Senet he Edition Global Edition
SUPPLY CHAIN MANAGEMENT
STRATEGY, PLANNING, AND OPERATION Sunil Chopra Kellogg School of Management THU VIEN TRUGNG DHSPET| CKN 12 Pearson + Boston « San Francisco « Toronto « Sydney +» Dubai « Singapore + Hong Kong > Volk
Harlow, England « London s New Yor k gland « Sao Paulo « Mexico City « Madrid « Amsterdam « Munich ¢ Paris + Milan na : : see Mile
Trang 3CONTENTS
Preface 9
Part | Supply Chains Building a Strategic Framework to Analyze
CHAPTER 1 UNDERSTANDING THE SUPPLY CHAIN 15
What Is a Supply Chain? 15
The Objective of a Supply Chain 17 Decision Phases in a Supply Chain 20 Process Views of a Supply Chain 22 Examples of Supply Chains 27
Developing Skills for Your Career 37
Discussion Questions 32 « Bibliography 32
CHAPTER 2 ACHIEVING STRATEGIC FIT IN A SUPPLY CHAIN 33
Competitive and Supply Chain Strategies 33
How is Strategic Fit Achieved? 36
Supply Chain Levers to Deal with Uncertainty 45
Expanding Strategic Scope 47
Discussion Questions 50 s Bibliography 50 > CASE STUDY: The Demise of Blockbuster 51
CHAPTER 3 SUPPLY CHAIN DRIVERS AND METRICS 54 Financial Measures of Performance 54
A Framework for Supply Chain Decisions 59 Facilities 67 Inventory 64 Transportation 66 Information 68 Sourcing 70 Pricing 72
Discussion Questions 75 ¢ Bibliography 75
> CASE STUDY: Seven-Eleven Japan Co 75 j 82
d Macy's Inc > CASE STUDY: Financial Statements for Walmart Stores Inc an
Part Il Designing the Supply Chain Network
D
CHAPTER 4 DESIGNING DISTRIBUTION NETWORKS AT ING 83 APPLICATIONS TO OMNI-CHANNEL R
ign in the Supply Ch
Factors Affecting Distribution Network Design In the Sup,
Design Options for a Distribution Network 88
Trang 4CHAPTER 5
CHAPTER 6
Online Sales and Omni-Channel Retailing 102
Discussion Questions 111 © Bibliography 111 > CASE STUDY: Blue Nile and Diamond Retailing 112
NETWORK DESIGN IN THE SUPPLY CHAIN 117 The Role of Network Design in the Supply Chain 117 Factors Influencing Network Design Decisions 119 Framework for Network Design Decisions 124
Models for Designing a Regional Network Configuration 127 Models for Identifying Potential Sites ina Region 132
Models for Demand Allocation and Plant Location 135
Discussion Questions 143 * Exercises 143 ¢ Bibliography 148 > CASE STUDY: Designing the Production Network at CoolWipes 148 > CASE STUDY: Managing a Merger at Lightning Networks 149
DESIGNING GLOBAL SUPPLY CHAIN NETWORKS 152 The Impact of Globalization on Supply Chain Networks 152 The Importance of Total Cost in Global Networks 154 Risk Management in Global Supply Chains 157
Evaluating Network Design Decisions using Decision Trees 161
To Onshore or To Offshore: The Value of Flexibility in a Supply Chain Under Uncertainty 171
Discussion Questions 179 ¢ Exercises 179 ¢ Bibliography 181
> CASE STUDY: BioPharma, Inc 182
> CASE STUDY: Global Supply Design for the Future: Nokia 184
Part Ill Planning and Coordinating Demand and Supply in a Supply Chain
CHAPTER 7
CHAPTER 8
DEMAND FORECASTING IN A SUPPLY CHAIN 186 The Role of Forecasting in a Supply Chain 186
Components of a Forecast and Forecasting Methods 188 Time-Series Forecasting Methods 192
Measures of Forecast Error 202
Building Forecasting Models using Excel 205
Discussion Questions 213 * Exercises 214 ¢ Bibliography 216 > CASE STUDY: Specialty Packaging Corporation 216
AGGREGATE PLANNING IN A SUPPLY CHAIN 219 Aggregate Planning and its Role ina Supply Chain 219
The Basic Tradeoffs in Aggregate Planning 222
Aggregate Planning using Linear Programming 223
Aggregate Planning in Excel 231
Discussion Questions 236 * Exercises 236 + Bibliography 238 > CASE STUDY: Kloss Planters and Harvesters 238
> CASE STUDY: Smartphone Production at QuickTronics 240
Trang 5CHAPTER 9 SALES AND OPERATIO NS PL CHAIN 241
TNNING MA SUPpLy
Responding to Predictable Variability in the Supply Cha;
Sales and Operations Planning at Red Tomato 245 nH
Discussion Questions 252 « Exercises 252 s > CASE STupy: Mintendo Game Girl 255
> CASE STUDY: Promotion Challenges at Gulmarg Skis 256
CHAPTER 10 COORDINATION IN A SUPPLY CHAIN 258
Lack of Supply Chain Coordination and its Impact on Performance 258 Obstacles to Coordination in @ Supply Chain 262 Managerial Levers to Improve Coordination 266 Some Practical Approaches to Improve Supply Chain Coordination 272
Discussion Questions 277 s Bibliography 277
Bibliography 254
Part IV Planning and Managing Inventories in a Supply Chain
CHAPTER 11 MANAGING ECONOMIES OF SCALE IN A SUPPLY CHAIN CYCLE INVENTORY 278
The Role of Cycle Inventory in a Supply Chain 278 Economies of Scale to Exploit Fixed Costs 281
Aggregating Multiple Products in a Single Order 288
Economies of Scale to Exploit Quantity Discounts 296
Why do Suppliers offer Quantity Discounts? 302 Short-Term Discounting: Trade Promotions 308 Managing Multiechelon Cycle Inventory 312
Managerial Levers to Reduce Cycle Inventory 315 oy BI Discussion Questions 317 © Exercises 317 * Bibliograpny
> CASE STUDY: Delivery Strategy at MoonChem 321 > CASE STUDY: Pricing and Delivery at NAN 323
Appendix 11A: Economic Order Quantity 324 tr
MANAGING UNCERTAINTY IN A SUPPLY CHAIN SAFE INVENTORY 325
The Role of Safety Inventory in a Supply Chain 325
Factors Affecting the Level of Safety Inventory 327 sal Determining the Appropriate Level of Safety Invenio
Impact of Supply Uncertainty on Safety Inventory 3
Impact of Aggregation on Safety Inventory 342 558
Impact of Replenishment Policies on Safety Km” 358 Managing Safety Inventory in a Multiechelon Supply
Trang 6Contents
Discussion Questions 360 ¢ Exercises 360 * Bibliography 364
> CASE STUDY: Managing Inventories at ALKO Inc 364
> CASE STUDY: Should Packing Be Postponed to the DC? 367 Appendix 12A: The Normal Distribution 368
Appendix 12B: The Normal Distribution in Excel 369
Appendix 12C: Expected Shortage per Replenishment Cycle 369
Appendix 12D: Evaluating Safety Inventory For Slow-Moving Items 370
CHAPTER 13 LINKING PRODUCT AVAILABILITY TO PROFITS 372 Factors Affecting the Desired Level of Product Availability 372 Evaluating the Optimal Level of Product Availability 376
Basic Managerial Levers to Improve Supply Chain Profitability 384 The Value of Speed in a Seasonal Supply Chain 386
The Value of Postponement in a Seasonal Supply Chain 391 Setting Product Availability for Multiple Products under Capacity
Constraints 396
Discussion Questions 399 © Exercises 399 © Bibliography 402
> CASE STUDY: The Need for Speed at Winner Apparel 402
Appendix 13A: Optimal Level of Product Availability 404 Appendix 13B: An Intermediate Evaluation 404
Appendix 13C: Expected Profit from an Order 405
Appendix 13D: Expected Overstock from an Order 406
Appendix 13E: Expected Understock from an Order 406
Appendix 13F: Simulation using Spreadsheets 407
Part V_ Designing and Planning Transportation Networks
CHAPTER 14 TRANSPORTATION IN A SUPPLY CHAIN 410
Transportation Modes and their Role in a Supply Chain 410 Transportation Infrastructure and Policies 416
Design Options for a Transportation Network 419
Mumbai Dabbawalas: A Successful Same Day Delivery Network 425
Trade-Offs in Transportation Design 426 Tailored Transportation 434
Discussion Questions 437 ¢ Bibliography 437
> CASE STUDY: Designing a Sustainable Distribution Network for
Euro-Grain 438
> CASE STUDY: The Future of Same-Day Delivery: Same as the Past? 439
> CASE STUDY: Selecting Transportation Modes for China Imports 440
Part VI Managing Cross-Functional Drivers in a Supply Chain
CHAPTER 15 SOURCING DECISIONS IN A SUPPLY CHAIN 441
The Sourcing Decision in a Supply Chain 441 Total Cost of Ownership 451
Trang 7Contents
The Impact of Incentives on Third-Party Behavior 457
Sharing Risk and Reward in the Supply Chain 459 " hy aya
Discussion Questions 470 * Exercises 471 *° Bibliography | > CASE STUDY: Polaris Industries Inc 473
CHAPTER 16 PRICING AND REVENUE MANAGEMENT IN A SUPPLY CHAIN 478
The Role of Pricing and Revenue Management in a Supply Chain 478 Differential Pricing for Multiple Customer Segments 481
Dynamic Pricing and Overbooking for Perishable Assets 488 Discounting and Peak Pricing for Seasonal Demand 495
Constructing a Portfolio of Bulk Contracts and Spot Buying 496 Some Practical Challenges When using Revenue Management 498
Discussion Questions 499 ¢ Exercises 499 © Bibliography 500 > CASE STUDY:To Savor or to Groupon? 500
CHAPTER 17 SUSTAINABILITY AND THE SUPPLY CHAIN 503
The Role of Sustainability in a Supply Chain 503 The Tragedy of the Commons 505
Key Pillars of Corporate Social Responsibility 509 Sustainability and Supply Chain Drivers 513
The Role of Incentives and Regulation for Sustainability 516
Discussion Questions 527 Bibliography 521
Part VII Online Chapter
CHAPTER A INFORMATION TECHNOLOGY INA SUPPLY CHAIN The Role of iT ina Supply Chain
The Supply Chain IT Framework The Future of IT in the Supply Chain Risk Management in IT
Trang 8PREFACE
This book is targeted toward an academic as well as a practitioner audience On the academic side,
it is appropriate for MBA students, engineering master’s students, and senior undergraduate stu- dents interested in supply chain management and logistics It can also serve as a suitable reference
for both concepts as well as providing a methodology for practitioners in consulting and industry
NEW TO THIS EDITION
The seventh edition has focused on changes that enhance students’ ability to sharpen their critical think- ing and data analytics skills as they study with the book All concepts discussed in the book are linked to strategic decision making in a supply chain, and all quantitative ideas are illustrated using spreadsheets
that can be implemented in practice Some specific changes in the seventh edition include:
¢ The link between supply chain decisions and the financial performance of a firm is developed in detail in Chapter 3
¢ The concepts underlying the design of distribution networks are illustrated in the context of omni-channel retailing in Chapter 4 The evolution of retailing is used throughout the
book to illustrate the link between supply chain concepts and strategic decision making in
a supply chain
* Each section of each chapter in the book is associated with a clearly identified learning objective that is summarized at the end of the section
¢ We have added new mini-cases in Chapters 5, 8, and 15 Information in other cases has been updated to be current
* New exercises have been added in several chapters
* For all numerical examples discussed in the book, we have developed spreadsheets that students can use to understand the concept at a deeper level These spreadsheets are
referred to in the book and allow the student to try different “what-if” analyses These spreadsheets are available at htt p://www.pearsonglobaleditions.com along with basic guid-
ance on how they may be created and used
* We have continued to add current examples throughout the book, with a particular focus on bringing in more global examples
SOLVING TEACHING AND LEARNING CHALLENGES
To be successful, supply chain practitioners must be able to formulate effective supply chain strategy and be able to solve any resulting supply chain problems using the available analytical tools In a supply chain class this creates the challenge of teaching students to think strategically while support- ing their decisions with robust quantitative analysis This book is designed to help faculty and stu-
dents overcome this challenge through its conceptual and pedagogical structure Conceptually, the
book aims to develop an understanding of the following key areas and their interrelationships: * The strategic role of a supply chain
* The key strategic drivers of supply chain performance * Analytic methodologies for supply chain analysis
To illustrate the strategic importance of good supply chain management, we provide many
current examples to show how companies have succeeded through effective supply chain
management or failed because of weak supply chain management Our strategic framework, the use
of Excel-based models to explain analytic methodologies, and several mini-cases to help students
internalize the link between the analytic methodologies and strategic decision making provide peda-
Trang 9Within the strategic framework, we identify
facilities, inventory, transportation, information, sourcing, and pricing as the key drivers of supply chain performance The book is structured to dig deeper into each driver to understand its role in the success of a supply chain, its interaction with other drivers, analytic methodologies to support decisions related to the driver, and managerial levers related to the driver that help improve sup- 10 Prefacc Competitive Strategy Responsiveness Efficiency Jogitical Dalya | Cross-Functional_ Drivers Te ] fi Sourcing “ing
Facies] Inventory [Transportation [Information [Sourcing [Pacing -
ply chain performance
A Consistent Strategic Framework Every analytic methodology is illustrated with its application in Excel Students have access to the associated Excel file along with instructions to construct and use the file The Excel files help students deepen their understanding of the link between the analytic models and the strate- gic decisions they support
Mini Cases
Most chapters have mini cases that can be used by faculty to ensure that students can apply the concepts and methodologies in the context of strategic decision making for a business
DEVELOPING CAREER SKILLS
Skills learned in this book will be of
bo 0k is developed with the premise that good Strategic decisions cannot be made without greal use no matter what path students choose to fol low The access to relevant analytics, and all analytics should be designed to support decision making Asa result, develop critical thinking, the ability to formulate and analyze problems, and sup- Port their recommendations with analytics that uses data literacy and computing skills 20 “Constraints 21 Spay Ragon [Excess Capea 22 ti wee 0 | 0 ọ >SUMPRODụ, CTB)4:FIS.B.pgy + SA PEODUCT(G13.G15.GụGg, +
SL IMPRODUCTY Excel Baseg Models Oat 18.14:]8) Function Objective
Every chapter in the book pushes students to think criti- cally in order to define and solve supply chain problems For example, Chapter 4 develops a framework for distri- bution networks and then pushes students to think about how retailing may evolve in the future as consumer pref- erences and technology change The first part of the and concepts related to the
literacy, Computin I
apply information technology to sy
Nike ở quantify financial
Metrics for different retail
mene $a result, students
learn how to use data and
Trang 10TABLE OF CONTENTS OVERVIEW Preface 11
Part 1 Building a Strategic Framework to Analyze Supply Chains
Ch 1: Understanding the Supply Introduces the supply chain, the managerial objective, and Chain key decisions
Ch, 2: Achieving Strategic Fit in a Discusses the need to align strategy with supply chain Supply Chain capabilities
Ch 3: Supply Chain Drivers and Defines key drivers of supply chain performance and Metrics associated performance metrics
Part2 Designing the Supply Chain Network
Ch 4: Designing Distribution Introduces framework for designing distribution networks Networks and Applications to Omni- with an application to omni-channel retailing
Channel Retailing
Ch 5: Network Design in the Supply Presents analytic models that support network design Chain
Ch 6: Designing Global Supply Discusses risks in global supply chains and analytic Chain Networks methodologies that incorporate uncertainty in network
design
Part 3 Planning and Coordinating Demand and Supply in a Supply Chain
Ch 7: Demand Forecasting in a Introduces techniques for demand forecasting and Supply Chain measuring forecast error
Ch 8: Aggregate Planning in a Introduces methodologies to plan supply to meet seasonal Supply Chain demand
Ch 9: Sales and Operations Planning Discusses how optimally managing both demand and supply in a Supply Chain can grow supply chain profits
Ch 10: Coordination in a Supply Discusses obstacles to coordination and managerial levers Chain that help improve coordination in a supply chain
Part4 Planning and Managing Inventories in a Supply Chain
Ch 11: Managing Economies of Introduces methodologies to obtain optimal batch sizes and Scale in a Supply Chain - Cycle discusses managerial levers that help reduce cycle inventory Inventory without hurting costs
Ch 12: Managing Uncertainty in a Introduces methodologies to obtain safety inventory and Supply Chain — Safety Inventory discusses managerial levers that help reduce safety inventory
‘ without hurting product availability
Ch 13: Linking Product Availability Discusses managerial levers that help increase profits in a to Profits supply chain
Part5 Designing and Planning Transportation Networks
Ch 14: Transportation in a Supply Discusses options and tradeoffs when designing a Chain transportation network
Part6 Managing Cross Functional Drivers in a Supply Chain
Ch, 15: Sourcing Decisions in a Introduces the concept of total cost in the context of Supply Chain sourcing and discusses the benefits of sharing risk and
reward in a supply chain
Ch 16: Pricing and Revenue Discusses how differential pricing can help increase profits in
Management in a Supply Chain a supply chain
Ch 17: Sustainability and the Supply Discusses the challenge to sustainability posed by the tragedy Chain of the commons and the role of incentives and regulation for improved sustainability Part 7 Online Chapter Ch A: Information Technology in a Supply Chain
Trang 1112 Preface
INSTRUCTOR TEACHING RESOURCES
ce Center, hutp:/hvww.pearsonglobaleditions com, instructors ee ly mis _— variety of instructor resources available with this text in down oada le mag amen vn cdl our dedicated technical support team is ready to help with the forma n — ‘a t accompany this text Visit Artps://support.pearson.com/getsupport for jects lane site questions and toll-free user support phone numbers
an
This program comes with the following teaching resources
Supplements available to instructors at Features of the Supplement
www pearsonglobaleditions.com
i hing Notes and Worksheets lution Manual © Case Teac Wor
deelyedh ite author ¢ Spreadsheets for all quantitative examples mm ® Discussion questions s Example figures ® Additional exercises ® Solutions to all questions and problems in the book
Test Bank 2000 multiple-choice, true/false, short- answer, and
authored by Geoff Willis of the University graphing questions with these annotations:
of Central Oklahoma © Correct answer
* Difficulty level (1 for straight recall, 2 for some analysis, 3 for complex analysis)
* Learning outcome reference © Topic covered
* AACSB learning standard (Analytical Thinking; Information Technology; Application of
Knowledge)
TestGen® Computerized Test Bank TestGen allows instructors to:
* Customize, save, and generate classroom tests * Edit, add, or delete questions from the Test Item
Files
* Analyze test results
* Organize a database of tests and student results PowerPoint Presentations
Slides include all th fons i
authored by Jeff Heyl of the Lincoin the textbook 1“
University
For Students
The following material is available to students at http://www, * Spreadsheets for numerica
the example discussed, but * Spreadsheets that allow stu * Online chapter: Chapter A: * Technical Note: Routing an
the Instructor’s Manual ava
Pearsonglobaleditions.com:
HH nề đheused in the book These provide the details of a ents to build every table shown in Chapters and allow the student to try different what-if 5 through 16 analyses
Information Technology ina Supply Chain
d sn |
ie eeiing in Transportation, This note is also bundled with on ww Pear songlobaleditions,
Trang 12ACKNOWLEDGMENTS
I would like to thank the many people who helped throughout this process I thank the reviewers whose suggestions significantly improved the book, including: Steven Brown, Arizona State University; Ming Chen, California State University, Long Beach; Sameer Kumar, University of
Saint Thomas; Frank Montabon, lowa State University; Brian Sauser, University of North Texas;
and Paul Venderspek, Colorado State University, and Michael Godfrey, University of Wisconsin Oshkosh
I would also like to thank my editor, Neeraj Bhalla, content producer, Sugandh Juneja,
editorial assistant, Linda Albelli, and the people at Pearson CSC, including Nicole Suddeth, Ronel Mirano, and Raja Natesan, for their efforts with the book Finally, I would like to thank you, the readers, for reading and using this book I hope it contributes to all your efforts to improve the performance of companies and supply chains throughout the world I would be pleased to hear your comments and suggestions for future editions of this text
Sunil Chopra
Kellogg School of Management, Northwestern University
GLOBAL EDITION ACKNOWLEDGMENTS
Pearson would like to thank and acknowledge the following people for their contribution to the
Global Edition Contributors
Kate Dunne, Galway-Mayo Institute of Technology
Reviewers
Merwyn Strate, Hult International Business School
Trang 13| N ` ` an “suy j _ unfVersites throughout the world Pearson publshed thís exe eS cae Cue Can - ee a = oe _
_ Googles Google Express—the text illustrates some of the key drivers of supply