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RAND mono- graphs present major research findings that address the challenges facing the public and private sectors. All RAND monographs undergo rigorous peer review to ensure high standards for research quality and objectivity. Implementing Purchasing and Supply Chain Management Best Practices in Market Research Nancy Nicosia, Nancy Y. Moore Prepared for the United States Air Force Approved for public release; distribution unlimited The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors. R ® is a registered trademark. © Copyright 2006 RAND Corporation All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from RAND. Published 2006 by the RAND Corporation 1776 Main Street, P.O. Box 2138, Santa Monica, CA 90407-2138 1200 South Hayes Street, Arlington, VA 22202-5050 4570 Fifth Avenue, Suite 600, Pittsburgh, PA 15213-2665 RAND URL: http://www.rand.org/ To order RAND documents or to obtain additional information, contact Distribution Services: Telephone: (310) 451-7002; Fax: (310) 451-6915; Email: order@rand.org The research reported here was sponsored by the United States Air Force under Contract F49642-01-C-0003. Further information may be obtained from the Strategic Planning Division, Directorate of Plans, Hq USAF. Library of Congress Cataloging-in-Publication Data Nicosia, Nancy. Implementing purchasing and supply chain management : best practices in market research / Nancy Nicosia, Nancy Y. Moore. p. cm. “RAND Project Air Force.” Includes bibliographical references. ISBN-13: 978-0-8330-3985-9 (pbk. : alk. paper) 1. United States. Air Force—Procurement. 2. Marketing research—United States. I. Moore, Nancy Y., 1947– . II. Title. UG1123.N53 2006 358.4'162120973—dc22 2006030994 iii Preface To achieve targets for increased aircraft availability with decreases in costs, the Air Force is implementing selected purchasing and supply management practices that are well-respected in the commercial sector. e implementation is currently focused on the Supply Chain Planning: Leading Practices Introduction Why are leading practices important? Leading edge companies are using supply chain planning (SCP) capabilities to reduce costs, enhance revenue and yields, and achieve other operational benefits Such companies pull ahead of their competitors with significantly reduced costs and/or increased yields Supply chain leaders put increased pressure on competitors to implement leading SCP practices as well A company may choose to use a subset of leading practices that best meets their industry profile and company needs Following are four leading practices that differentiate a company's supply chain planning capabilities: Global SCP The emergence of a global economy has driven companies to rethink their competitive strategies and globalize their supply chains The impact on the supply chain can lead to increased leadtimes and planning complexity Global SCP practices allow companies to take advantage of the benefits of globalization while managing the risks and complexities across the supply chain Collaboration With increased pressure to reduce lead-times and become more cost competitive, companies can eliminate inefficiencies with trading partners by sharing information and integrating processes Known as collaboration, we define it as "the sharing of information among trading partners and across enterprises for the purpose of developing a joint plan of action, and then working together to execute that plan." Financial Optimization Companies are looking for techniques to optimize the cost of delivering value to customers Financial optimization strategies help various supply chain entities achieve the common objectives of satisfying the final customers and obtaining dominant market share in a costefficient manner Postponement A strategy that delays product differentiation until a point further along the supply chain Supply chain inventories have a direct impact on company profitability Companies are increasingly using postponement to manage inventory levels while improving customer order fill rates We will explore the impact of postponement strategies on SCP processes Copyright (c) 2008 Accenture All rights reserved You may only use and print one copy of this document for private study in connection with your personal, non-commercial use of a Supply Chain Academy course validly licensed from Accenture This document, may not be photocopied, distributed, or otherwise duplicated, repackaged or modified in any way Note: interactive elements such as activities, quizzes and assessment tests are not available in printed form Objectives After completing this module, you should be able to: • • • Discuss how businesses have responded to new challenges by using supply chain planning concepts Describe the leading practices in supply chain planning, including Global SCP, collaboration, financial optimization, and postponement Identify and discuss the benefits of leading practices Copyright (c) 2008 Accenture All rights reserved You may only use and print one copy of this document for private study in connection with your personal, non-commercial use of a Supply Chain Academy course validly licensed from Accenture This document, may not be photocopied, distributed, or otherwise duplicated, repackaged or modified in any way Note: interactive elements such as activities, quizzes and assessment tests are not available in printed form GLOBAL SUPPLY CHAIN PLANNING Overview The emergence of a global economy is forcing companies to rethink their competitive strategies Many companies are embracing global initiatives that allow them to: • • • • • Pursue new markets Achieve greater economies of scale Leverage unique aspects of different countries and cultures Eliminate redundancies Improve organizational learning through international integration Copyright (c) 2008 Accenture All rights reserved You may only use and print one copy of this document for private study in connection with your personal, non-commercial use of a Supply Chain Academy course validly licensed from Accenture This document, may not be photocopied, distributed, or otherwise duplicated, repackaged or modified in any way Note: interactive elements such as activities, quizzes and assessment tests are not available in printed form Business Drivers of Globalization Other factors that have impacted globalization include: • Tax laws and labor costs have created opportunities for companies to remain cost competitive with dispersed manufacturing and distribution For example, pharmaceutical companies realize significant tax benefits for manufacturing drugs in Puerto Rico In addition, the Internet has increased alliance and partnership opportunities by bringing together companies that were either previously unknown to one another or geographically dispersed • Trade agreements have had a significant impact on organizational supply chains Implementing trade agreements in Europe, e.g., via the European Union (EU) or the European ...Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Pricing and production planning for the supply chain management Yin, Rui ProQuest Dissertations and Theses; 2007; ProQuest Central pg. n/a Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. 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[...]...Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission... permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission... permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission... permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission... permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission... permission Reproduced with permission of the copyright owner Further reproduction prohibited without permission Reproduced with permission of the ANALYSIS OF THE SUPPLY CHAIN DESIGN AND PLANNING ISSUES: MODELS AND ALGORITHMS HUANG YIKAI (B.E. and M. E., Tsinghua University, Beijing, China) A THESIS SUBMITTED FOR THE DEGREE OF DOCTOR OF PHILOSOPHY DEPARTMENT OF CIVIL ENGINEERING NATIONAL UNIVERSITY OF SINGAPORE 2007 i ACKNOWLEDGEMENTS This thesis is the result of nearly four years of my work whereby I have been accompanied and supported by many people. It is a pleasant aspect that I have now the opportunity to express my gratitude for all of them. First and foremost, I would like to express my deepest appreciation to my supervisor Dr. Meng Qiang for his guidance, support and patience in directing me throughout the research. He has been a steady source of support for me throughout my entire candidature, often offering wise counsel on the academic front. For that, I’ll always be grateful. I am also deeply grateful to the members of my PhD committee who monitored my work and gave me valuable suggestions on the research topic: Associate Professor Lee Der-Horng and Associate Professor K., Raguraman. Special thanks also go to my module lecturers and some other professors: Professor Fwa Tien Fang, Associate Professor Chin Hoong Chor, Associate Professor Chua Kim Huat, David, Associate Professor Phoon Kok Kwang, Associate Professor Lee Loo Hay, Dr Wikrom Jaruphongsa, Associate Professor Cheu Ruey Long from University of Texas at El Paso, Professor Miao Lixin from Tsinghua University and Professor Wang Xiubin from University of Wisconsin. I am bound to the staff in Intelligent Transportation and Vehicle Systems Lab and the traffic lab: Mr Foo Chee Kiong, Madam Theresa and Madam Chong Wei Leng for their stimulating support. I have furthermore to thank my friends Li Lingzi, Li Ting, Khoo Hooi Ling, Cao ii Jinxin, Cao Zhi, Wang Huiqiu, Dong Meng and Bian Wen for their friendship, which is important to my study and life in Singapore. Moreover, many thanks go to my friend Tan Chenxun, who really gave some immense suggestions for my thesis. I am also greatly indebted to National University of Singapore for its generous scholarship supporting my study. Last but not the least, the most heartfelt thanks go to my parents, my uncle and my brother for their perpetual encouragement. iii CONTENT TITLE PAGE i ACKNOWLEDGEMENTS ii CONTENT… .iv SUMMARY… .vi LIST OF TABLES viii LIST OF FIGURES xi CHAPTER INTRODUCTION 1.1 Background 1.2 Objectives .3 1.2.1 Domestic supply chain .3 1.2.2 Global supply chain .6 1.3 Outline of the Thesis CHAPTER LITERATURE REVIEW 10 2.1 Domestic Supply Chain 10 2.1.1 Supply chain network equilibrium models 10 2.1.2 Competitive facility location problems 13 2.2 Global Supply Chain 18 CHAPTER REFORMULATING SUPPLY CHAIN NETWORK EQUILIBRIUM MODELS .24 3.1 Introduction 24 3.2 Supply Chain Network Equilibrium Models 24 3.2.1 Deterministic demand case 26 3.2.2 Random demand case 29 3.3 Unconstrained Minimization Formulations .32 3.4 Quasi-Newton Algorithm vs. the Modified Projection Method .36 3.5 Concepts in Enterprise Resource Planning 2nd Edition Chapter Production and Supply Chain Management Information Systems Chapter Objectives • Describe the steps in the production planning process of a high-volume manufacturer such as Fitter Snacker • Describe Fitter Snacker’s production and materials management problems • Describe how a structured process for supply chain management planning enhances efficiency and decision making • Describe how production-planning data in an ERP system can be shared with suppliers to increase supply chain efficiency Concepts in Enterprise Resource Planning, Second Edition Introduction • Enterprise Resource Planning (ERP) has its roots in Materials Requirements Planning (MRP) • MRP is still a large part of ERP systems • Supply Chain Management looks at the entire supply system from raw materials to finished goods on the retail shelf Concepts in Enterprise Resource Planning, Second Edition Production Overview • A production plan answers two questions: How many of each type of snack bar should we produce, and when? What quantities of raw materials should we order so we can meet that level of production, and when should they be ordered? • A successful company must be able to: • Develop a good production plan • Execute the plan • Make adjustments when customer demand differs from the forecast Concepts in Enterprise Resource Planning, Second Edition Production Overview • Three general production approaches: • Make-to-stock: products are made for inventory in anticipation of sales orders • • Make-to-order: products are made to fill specific customer orders • • Most consumer products are make-to-stock Expensive products or products made to customer specifications Assemble-to-order: combination of make-to-stock and maketo-order • Final product assembled for a specific customer order from stock components Concepts in Enterprise Resource Planning, Second Edition Fitter Snacker’s Manufacturing Process • Snack bar line produces: • 200 bars/minute • 3,000 lb/hr • Production line operates for one 8-hour shift per day • Raw materials are mixed in one of four mixers • Mixers can produce 4,000 lb of dough per hour • Excess capacity protects snack bar line from shutting down if a mixer breaks • The oz snacks are packed 24 to a display box with 12 display boxes packed to a case • Changing from NRG-A to NRG-B bars takes 30 minutes Concepts in Enterprise Resource Planning, Second Edition Mixer Snack Bar Line Form Bake Mixer Mixer Pack Finished Goods Warehouse Raw Material Warehouse Mixer Figure 4.1 Fitter Snacker’s manufacturing process Concepts in Enterprise Resource Planning, Second Edition Fitter Snacker’s Production Problems • Fitter Snacker’s production problem is deciding how many snack bars to make and when to make them • Fitter Snacker’s main production problems are in the areas of: • Communication problems • Inventory problems • Accounting and purchasing problems • All of which are exacerbated by Fitter Snacker’s un-integrated information system Concepts in Enterprise Resource Planning, Second Edition Communication Problems • Communication problems exist in most companies • Magnified in a company without an integrated information system • At Fitter Snacker, Marketing and Production not communicate or coordinate planning • Production is not always informed of sales promotions or unexpected planned orders • Can result in depleted inventory, overtime production, expedited shipments and material shortages • Production may not inform Marketing about planned maintenance, which will reduce production Concepts in Enterprise Resource Planning, Second Edition Inventory Problems • Production manager schedules production based on experience, rather than formal planning techniques • Primarily compares current warehouse inventory Supply Chain Planning: Production Planning Introduction Why is Production Planning Important? The goal of production planning is to support the manufacturing process by determining the resources and sequence of operations required to build a product During the production planning process, a company generates the detailed production schedule required to build a product The production schedule must be tightly linked with a detailed materials plan to ensure the raw materials are available when needed The planning process also communicates required materials to the purchasing department The primary business issues addressed by production planning include: • • Ensuring machines and materials are available for production when needed Maximizing throughput and utilization of factory resources Copyright (c) 2004 Accenture All rights reserved You may only use and print one copy of this document for private study in connection with your personal, non-commercial use of a Supply Chain Academy course validly licensed from Accenture This document, may not be photocopied, distributed, or otherwise duplicated, repackaged or modified in any way Note: interactive elements such as activities, quizzes and assessment tests are not available in printed form How is a Production Planning Integrated with Supply Chain Planning? Production planning is one component of the supply chain planning process Supply chain planning is an integrated process that allows companies to plan and integrate the supply chain functions of procurement, manufacturing, and fulfillment Demand, supply, production, and fulfillment planning operate as interdependent supply chain planning functions The goal is to integrate these processes so that all the plans are synchronized with one another Plans generated during one process are used by one or more of the other processes In other words, planners need to know: • • What to with the information generated How the different processes relate to one another Specifically, a materials planner may wonder, "What if my suppliers can't deliver to our requested quantities and timing?" There are many ways to resolve this issue One viable option is to delay the production of some of the items until materials are available, and inform fulfillment planning about the delay in meeting customer requirements Another option may be to work with Procurement to determine if the finished goods could be sourced from another vendor Copyright (c) 2004 Accenture All rights reserved You may only use and print one copy of this document for private study in connection with your personal, non-commercial use of a Supply Chain Academy course validly licensed from Accenture This document, may not be photocopied, distributed, or otherwise duplicated, repackaged or modified in any way Note: interactive elements such as activities, quizzes and assessment tests are not available in printed form Objectives After completing this module, you should be able to: • Discuss the purpose, objectives, and benefits of production planning • Describe the different components of production planning, the business problems it solves, and the key capabilities production planning offers • Identify key inputs, constraints, and other considerations for the components of production planning • Describe the measurements and metrics for production planning Copyright (c) 2004 Accenture All rights reserved You may only use and print one copy of this document for private study in connection with your personal, non-commercial use of a Supply Chain Academy course validly licensed from Accenture This document, may not be photocopied, distributed, or otherwise duplicated, repackaged or modified in any way Note: interactive elements such as activities, quizzes and assessment tests are not available in printed form Introduction to Production Planning Overview Once a company has developed demand and supply plans, it must plan how to manufacture the product Production planning (sometimes referred to ... challenges with global supply chain planning Global SCP is the process of performing supply chain planning globally rather than locally or regionally In the early stages of supply chain planning, SCP... how businesses have responded to new challenges by using supply chain planning concepts Describe the leading practices in supply chain planning, including Global SCP, collaboration, financial... communication between entities, reducing the chances for supply- demand mismatches In a global supply chain planning model: • Supply chain planning determines the requirements for each plant, and