Chapter 3

Supply Chain Operations:

Making and Delivering

 Chapter 3
Supply Chain Operations:
Making and Delivering
Product Design (Make)

Production Scheduling (Make)

Facility Management (Make)

Order Management (Deliver)

Delivery Scheduling (Deliver)

Return Processing (Deliver)

Supply Chain Operations Can Be Outsourced

Product Design (Make)

A product design that does a good job of

coordinating the three perspectives—
design, procurement, and manufacturing—
will result in a product that can be
supported by an efficient supply chain.
This will give the product a fast time to
market and a competitive cost.
Production Scheduling (Make)
Production scheduling allocates available capacity (equipment,
labor, and facilities) to the work that needs to be done.

The production scheduling operation is a process of finding the

right balance between several competing objectives:

• High Utilization Rates—This often means long production

runs and centralized manufacturing and distribution centers.
The idea is to generate and benefit from economies of scale.

• Low Inventory Levels—This usually means short production

runs and just-in-time delivery of raw materials. The idea is to
minimize the assets and cash tied up in inventory.

• High Levels of Customer Service—Often requires high levels

of inventory or many short production runs. The aim is to
provide the customer with quick delivery of products and not
to run out of stock in any product.
 Facility Management (Make)

Facility management takes location as a

given and focuses on how best to use the
capacity available. This involves making
decisions in three areas:
1. The role each facility will play
2. How capacity is allocated in each facility
3. The allocation of suppliers and markets
to each facility
 Order Management (Deliver)

Order management is the process of passing

order information from customers back
through the supply chain from retailers to
distributors to service providers and
producers.
This process also includes passing
information about order delivery dates,
product substitutions, and back orders
forward through the supply chain to
customers.
Because of supply chain complexity and changing market demands,
order management is a process that is evolving rapidly. However, a
handful of basic principles can be listed that guide this operation:

• Enter the Order Data Once and Only Once—Capture the data electronically as close
to its original source as possible and do not manually reenter the data as it moves
through the supply chain. It is usually best if the customers themselves enter their
orders into an order entry system. This system should then transfer the relevant
order data to other systems and supply chain participants as needed for creation of
purchase orders, pick tickets, invoices, and so on.
• Automate the Order Handling—Manual intervention should be minimized for the
routing and filling of routine orders. Computer systems should send needed data to
the appropriate locations to fulfill routine orders. Exception handling should identify
orders with problems that require people to get involved to fix them.
• Make Order Status Visible to Customers and Service Agents— Let customers track
their orders through all the stages from entry of the order to delivery of the
products. Customers should be able to see order status on demand without having to
enlist the assistance of other people. When an order runs into problems, bring the
order to the attention of service agents who can resolve the problems.
• Integrate Order Management Systems with Other Related Systems to Maintain
Data Integrity—Order entry systems need product descriptive data and product
prices to guide the customer in making their choices. The systems that maintain this
product data should communicate with order management systems. Order data is
needed by other systems to update inventory status, calculate delivery schedules,
and generate invoices. Order data should automatically flow into these systems in an
accurate and timely manner.
Delivery Scheduling (Deliver)

The delivery scheduling process works within the constraints

set by transportation decisions. For most modes of
transportation there are two types of delivery methods: direct
deliveries and milk run deliveries.

Direct Deliveries
Direct deliveries are deliveries made from one originating
location to one receiving location.

Milk Run Deliveries

Milk run deliveries are deliveries that are routed to either
bring products from a single originating location to multiple
receiving locations or deliveries that bring products from
multiple originating locations to a single receiving location.
Delivery Sources

Deliveries can be made to customers from two sources:

1. Single product locations
Single product locations are facilities such as factories or
warehouses where a single product or a narrow range of
related items are available for shipment.

2. Distribution centers
Distribution centers are facilities where bulk shipments of
products arrive from single product locations. When suppliers
are located a long distance away from customers, the use of a
distribution center provides for economies of scale in long-
distance transportation to bring large amounts of products to a
location close to the final customers.
The distribution center may warehouse inventory for future
shipment or it may be used primarily for crossdocking.
Crossdocking is a technique pioneered by Wal-Mart where
truckload shipments of single products arrive and are
unloaded.
Return Processing (Deliver)

End customers, retailers, distributors, and

manufacturers all return products under
certain circumstances. The most common
circumstances are: the wrong products
were delivered; the products that were
delivered were damaged in transit or were
defective from the factory; and more
product was delivered than was needed by
the customer. All of these circumstances
arise from supply chain inefficiencies that
created the need to return products.
Supply Chain Operations Can Be Outsourced
The relentless pressure on profit margins that free markets
create is a driving force behind the growth of outsourcing.
What may be considered as overhead for Company A may be
a service that Company B can offer and make a profit doing
so. Company B may be able to offer this service for a price
lower than it costs Company A to do it in-house. Company A
is going to consider outsourcing.

The traditional participants in supply chains are producers,

logistics providers, distributors, and retailers.
There are some operations such as credit and collections,
product design, and order management that may not be a
core competency of any of the traditional participants. This
creates opportunities for new service providers to take on
these operations and offer them to the other supply chain
participants.

The other force that drives outsourcing is the growing

sophistication of the markets that supply chains serve.