Designing Effective Supply Chains

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Designing Effective Supply Chains

• Class 2
• David Dilts

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First, what are some common SC Performance Metrics

• Cost
• Inventory Factors
• Turns
• Fill-rate
• Just-in-time
• Overstock/Stockouts
• Shipment size
• Transportation delay
• Manufacturing
• Utilization
• Setup Reduction
• Inventory Buffers

• Time factors
• Lead times
• Just-in-time
• Restocking time
• Product design time
• Cash cycle
• Quality factors
• Willingness of customers to accept
  less-than-perfect products
• Disruptions

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Designing an effective supply chain strategy

• Consider nature of demand or ones product
• Potential product lifecycle / industry clockspeed
• Demand stability
• Product Variety
• Market standards for times and service
• Availability of suppliers
• Your position in the supply chain

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Fishers hypotheses

• Supply chains can be divided into two categories
• Primarily functional
• Examples
• Primarily innovative
• Examples

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Functional Vs Innovative Products Differences in
Demand Characteristics
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What should be the dominate strategy for each
type of supply chain?

• For Functional products?
• For Innovative products?
• What type of suppliers should you have for each
  SC type?

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Impact of Stockouts

• Contribution margin (price variable cost) /
  price
• For Innovative Products
• With a contribution margin of 50, and an average
  stockout rate of 20, cost of stockouts .5.2
  10 of sales
• For Functional Products?

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Focus of supply chains for functional products.

• The Campbell Soup example.
• Traditional Operations Research Foci
• Efficiency
• Maximizing fill rates.
• Minimization of variety
• Co-ordination
• Long-range Forecasting
• The 3-Cs
• Command
• Coordination
• Control

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Focus of supply chains for innovative products

• Cannot control so manage
• Except uncertainty.
• Reduce uncertainty.
• Avoid uncertainty.
• Hedge against uncertainty.
• Needs
• Fast, accurate response.
• Close customer and supplier relationships
• Sense and respond management
• Ability to use mass customization
• Increase price

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Question

• Is Dell computer a functional or innovative
  supply chain?
• Does a hospital need a functional or innovative
  supply chain?

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A strategic approach to SC design
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Changing Environments
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Cost Relationship between design content and
manufacturing process
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Rethinking Manufacturing

• From
• Separate but equal
• Multiple Sourcing
• Individual Decisions
• Excess Capacity
• Variable Production

• To
• Strategic Decisions
• Strategic Processes
• Unified Decisions
• Right Capacity
• Level Production

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Strategic Identification Process
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Strategic vs. Non-strategic

• Strategic Items
• Complex Items
• Unique Processes
• Single Supplier
• Schedule Drivers
• Prototypes

• Non-Strategic Items
• Simple Items
• Common Processes
• Many Suppliers
• Schedule Flexibility
• Typical Items

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Strategic Processes
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Strategy Procurement Planning Grouping of
strategic items by similarities
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Strategy Procurement Planning Grouping of
non-strategic items by similarities
system
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Strategy Procurement Planning Final results of
item process grouping
All items placed in a category
system

• Key
• Red Strategic Item Yellow Strategic process
• Blue Non-Strategic items/process White
  Unique, but non-strategic item/process

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Strategy Procurement Planning Logistics
Considerations
System
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Strategy Procurement Planning Supplier
Considerations
system
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Integration of Process Strategy
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Factory Sizing Strategy
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Summary

• Look for parts commonalities at product design
• Divide products processes into strategic and
  not-strategic
• Group products processes if possible
• Investigate Logistics supplier considerations
• Look to minimize internal disruptions by using
  suppliers