Operation management 4th reil sanders wiley chapter 4

Chapter – E-Commerce and Supply Chain Management Operations Management by R Dan Reid & Nada R Sanders 3rd Edition © Wiley 2010 PowerPoint Presentation by R.B Clough – UNH M E Henrie - UAA © 2010 Wiley Supply Chains & SCM   A supply chain is the network of all the activities involved in delivering a finished product/service to the customer  Sourcing of raw materials, assembly, warehousing, order entry, distribution, delivery Supply Chain Management is the vital business function that coordinates all of the network links  Coordinates movement of goods through supply chain from suppliers to manufacturers to distributors  Promotes information sharing along chain like forecasts, sales data, & promotions © 2010 Wiley A Supply Chain can provide strategic advantage Why Nokia Is Leaving Moto in the Dust http://www.businessweek.com/globalbiz/content/jul2007/gb20070719_088898.htm?chan=search Nokia's supply-chain management may be the best of any company in the world It has a big head start in fast-growing markets such as China and India And it has $9.5 billion in cash and practically no debt, so it can invest far more than rivals on developing new products or conquering new markets—and thus build even more intimidating economies of scale "We are about to report our billionth customer, so we must be doing something right," says Anssi Vanjoki, a Nokia executive committee member responsible for multimedia devices Thanks to those advantages, Nokia's global market share has climbed to 37%, and some in the industry think it could hit 40% this year Business Week July 19, 2007 © 2010 Wiley Supply Chain Management is Challenging! http://www.businessweek.com/bwdaily/dnflash/content/apr2008/db2008043_948354.htm?chan=search Even More Boeing 787 Delays? Given assembly and design issues, deliveries of the 787 Dreamliner aren't likely until late 2009 Some dissatisfied customers are discussing compensation Deliveries of the Dreamliner are already 10 months behind schedule and glitches along Boeing's complex global supply chain slowed production and forced the company to redesign its wing box Asked on Apr about the possibility of yet another delay, Boeing (BA) spokeswoman Yvonne Leach simply acknowledged that an announcement of a revised schedule is coming soon Business Week April 4, 2007 © 2010 Wiley A Supply Chain can be a matter of life & death http://www.breitbart.com/article.php?id=D8UAB1DO2&show_art icle=1 Iran has the second largest natural gas reservoir of the world but its supply network has been overwhelmed by high demand Both reformists and conservatives are increasingly asking the president why Iranians are dying from the cold while sitting on the massive gas fields As much as 22 inches of snow fell in areas of northern and central Iran in early January, the heaviest snowfall in more than a decade Local 2010 Wiley media have reported ©64 cold-related deaths © 2010 Wiley fig_04_01 Suppliers  Key Material Decisions      Location Capacity Lot sizes; that is, how much to make in a production run Inventory (mainly raw material) Key Information & Related Decisions    Customer orders Costs, market prices EDI; web-based;… © 2010 Wiley Manufacturers/Assemblers  Key Material Decisions       Location Capacity Sourcing of components necessary resources: labor, fuel, equipment Lot sizes; that is, how much to make in a production run Inventory (in all forms) Key Information & Related Decisions    Supplier shipments Customer orders Costs, market prices © 2010 Wiley Warehouse/Distribution Centers   Key Material Decisions  Location  Capacity  Inventory (finished & semi-finished) Key Information & Related Decisions   Customer orders Manufacturer/Assembler shipments © 2010 Wiley Retailers   Key Material Decisions  Location  Inventory (finished goods) Key Information & Related Decisions    Customer orders Shipments from Warehouses/DCs Market prices © 2010 Wiley 10 E-Commerce Case: Furniture.com Furniture.com was a shooting star during the dot.com boom in the late 90s It featured thousands of products and at its peak drew 1,000,000 visitors per month to its website But while Furniture.com was racking up $22 million in sales through the first months of the year 2000, it was also incurring huge logistics costs because of inefficient delivery processes While furniture production lot sizes are typically small and activated by orders, economic delivery lot sizes are usually much larger and regularly scheduled, causing a mismatch in the supply chain The firm also encountered unexpected problems maintaining an alliance with regional distributors along with thorny repair and return issues Business was permanently tabled at Furniture.com in November, 2000 © 2010 Wiley 48 E-Commerce Case, continued: Furniture.com Or so it seemed! In mid-2002, several former employees rallied investors to re-start the company The new Furniture.com eschews distribution centers and a fulfilment infrastructure “The previous Furniture.com followed the model en vogue at the time, the model getting funded at the time, which was to be the next Amazon of the relevant category” said President Carl Prindle In markets where it operates, the new company partners with brick-andmortar retailers, who provide the distribution The firm’s focus is now exclusively on upgrading its online marketing, providing, for instance, a room planner to online shoppers A percentage of each online sale is remitted to Furniture.com in return Sources: Designing and Managing the Supply Chain, Third Edition, by D Simchi-Levi, P Kaminsky, and E Simchi-Levi, McGraw-Hill Irwin, Boston.“Reincarnated Furniture.com partners with retailers,” by Mike Duff, DSN Retailing Today; 2/7/2005, Vol 44 Issue 3, p6, 2p © 2010 Wiley 49 Current Trends in SCM  Increased use of electronic marketplace such as   E-distributors – independently owned net marketplaces having catalogs representing thousands of suppliers and designed for spot purchases E-purchasing – companies that connect on-line MRO suppliers to business who pay fees to join the market, usually for long-term contractual purchasing © 2010 Wiley 50 Current Trends in SCM continued  Increased use of electronic marketplace such as     Value chain management – automation of a firm’s purchasing or selling processes Exchanges – marketplace that focuses on spot requirements of large firms in a single industry Industry consortia – industry-owned markets that enable buyers to purchase direct inputs from a limited set of invited suppliers Decreased supply chain velocity due to greater distances with greater uncertainty and generally less efficient © 2010 Wiley 51 SCM Across the Organization       SCM changes the way companies business Accounting shares SCM benefits due to inventory level decreases Marketing benefits by improved customer service levels Information systems are critical for information sharing through PSO data, EDI, RFID, the Internet, intranet, and extranets Purchasing is responsible for sourcing materials Operations use timely demand information to more effectively plan production schedules © 2010 Wiley 52 Case in Supply Chain Network Design: Procter & Gamble In the 1990s, P&G was facing competitive pressure primarily with regard to overall cost Excess capacity at plants, largely due to successful quality initiatives in the 80s, and reduced distribution requirements, largely due to redesigned “compactified” products, presented P&G with an opportunity to re-design their supply chain Comprised of over 50 product categories, over 60 plants, 15 distribution centers, and over 1000 customers, the redesign was a major project involving over 500 people organized in more than 30 teams Analysis of this supply chain led to the formulation of a large-scale mixed integer linear program, An important feature of the DSS developed around this model was the visualization capability afforded by integrating a Geographic Information System (GIS) into the user interface The GIS gave managers a good grip on solutions generated by the DSS under various scenarios, such as that of closing specific plants The documented pre-tax savings of roughly $200 million annually is proof of the pudding indeed in the case of this DSS Sources: "Blending OR/MS, Judgment, and GIS: Restructuring P&G's Supply Chain" by Jeffrey Camm et al © 2010 Wiley 53 3M Supply Chain Design http://www.businessweek.com/magazine/content/07_24/b4038410.htm?chan=search EXPANSION AND CONTRACTION  Buckley plans to spend $1.5 billion on 18 new plants or major expansions around the world, including 11 outside the U.S., with four new factories in China alone The thinking is that the new factories will add much needed capacity—especially abroad, where 3M pulls in more than 60% of its revenues, and where it expects to get up to 75% over the next several years Despite a vast, complicated network of 64 international subsidiary companies, just 35% of 3M's manufacturing capacity is overseas In Buckley's view, the plant expansions won't just add capacity—they are an opportunity to make the whole logistics chain more efficient by shortening supply lines and bringing production closer to local markets How did things get that way at 3M? For a long time, one of the © 2010 Wiley tenets of the 3M catechism was "make a little, sell a little." 54 Once a project was green-lighted, it might receive funding, but the developer or scientist would have to make small quantities of the product in an ad hoc manner by using idle spots of time at factories throughout the 3M system It was a way to minimize the financial risk of a new product, and it served the company quite well—when its infrastructure and sales were centered mainly in the U.S KEEPING INVENTORY MOVING  Now, "make a little, sell a little" means that a typical product might be extruded in Canada, machined in France, packaged in Mexico, and sold in Japan That's costly, and it means that half of 3M products spend 100 days traveling through the supply line, according to Buckley, even before it has to jump any local bureaucratic hurdles The net result is that 3M has a lot of money tied up in inventory around the world that's just sitting on boats, in trucks, and in warehouses In the fourth quarter of 2006, for instance, sales rose about $500 million But working capital went up $450 million and receivables increased $250 million, Buckley says If that trend continues, "You'd be borrowing money to grow," he says © 2010 Wiley 55 Chapter Highlights   Every organization is part of a supply chain, either as a customer or as a supplier Supply chains include all the processes needed to make a finished product, from the extraction of raw materials through the sale to the end user SCM is the integration and coordination of these efforts The bullwhip effect distorts product demand information passed between levels of the supply chain The more levels that exist, the more distortion that is possible Variability results from updating demand estimates at each level, order batching, price fluctuations, and rationing © 2010 Wiley 56 Chapter Highlights (continued)   Many issues affect supply chain management The Internet, the WEB, EDI, intranets, extranets, bar-code scanners, and POS data are SCM enablers B2B and B2C electronic commerce enable supply chain management Net marketplaces bring together thousands or suppliers and customers Allowing for efficient sourcing and lower transaction costs © 2010 Wiley 57 Chapter Highlights (continued)   Global supply chains increase geographic distances between members, causing greater uncertainty in delivery times Purchasing has a major role in SCM Purchasing is involved in sourcing decisions and developing strategic long-term partnerships © 2010 Wiley 58 Chapter Highlights (continued)   Ethics in supply management is an ongoing concern Since buyers are in a position to influence or award business, it is imperative that buyers avoid any appearance of unethical behavior or conflict of interest Companies make insourcing and outsourcing decisions These make-orbuy decisions are based on financial and strategic criteria © 2010 Wiley 59 Chapter Highlights (continued)   Partnerships require sharing information, risks, technologies, and opportunities Impact, intimacy, and vision are critical to successful partnering Supply chain distribution requires effective warehousing operations The warehouses provide transportation, consolidation, product mixing, and service © 2010 Wiley 60 Chapter Highlights (continued)  Integrated SCM usually begins with the manufacturer integrating internal processes first The, the company tries to integrate the external suppliers The last step is integrating the external distributors © 2010 Wiley 61 Chapter Highlights (continued)   A company needs to evaluate the performance of its supply chain Regular performance metrics (ROI, profitability, market share, customer service levels, etc.) and other measures that reflect the objectives of the SC are used The emergence of net marketplaces has significantly affected SCM As supply chains become longer, it is likely that supply chain velocity will decrease It is possible that a more strategic and integrated approach is needed to advance SCM to the next level © 2010 Wiley 62 ... could hit 40 % this year Business Week July 19, 2007 © 2010 Wiley Supply Chain Management is Challenging! http://www.businessweek.com/bwdaily/dnflash/content/apr2008/db2008 043 _ 948 3 54. htm?chan=search... from active management to more passive management When that happens, I believe it's up to the supply base itself to try to find another alternative © 2010 Wiley 24 © 2010 Wiley table_ 04_ 01 25 SCM... January, the heaviest snowfall in more than a decade Local 2010 Wiley media have reported © 64 cold-related deaths © 2010 Wiley fig_ 04_ 01 Suppliers  Key Material Decisions      Location Capacity