Om4 C09-Student

SUPPLY CHAIN DESIGN
CHAPTER 9
DAVID A. COLLIER AND JAMES R. EVANS
©2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or 1
duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 9 SUPPLY CHAIN DESIGN
9-1 Explain the concept of supply chain management.

9-2 Describe the key issues in designing supply chains.
9-3 Define metrics used in evaluating supply chain
performance.
9-4 Explain important factors and decisions in locating
facilities.
9-5 Describe the role of transportation, supplier
evaluation, technology, and inventory in supply
chain management.
Understanding Supply Chains

• A supply chain is a key subsystem of a value chain
that focuses primarily on the physical movement of
goods and materials along with supporting
information through the supply, production, and
distribution processes.
• Key Functions: Purchasing and procurement of

materials and supplies, sales and order processing,
operations, inventory and materials management,
transportation and distribution, information
management, finance, and customer service.

• Distribution centers (DCs) are warehouses
that act as intermediaries between factories and
customers, shipping directly to customers or to
retail stores where products are made available to
customers.
• Inventory refers to raw materials, work-in-

process, or finished goods that are maintained to
support production or satisfy customer demand.
Exhibit 9.1
Typical Goods-
Producing
Supply Chain
Structure

• Supply chain management (SCM) is the
management of all activities that facilitate the
fulfillment of a customer order for a
manufactured good to achieve satisfied
customers at a reasonable cost.
The Supply Chain Operations Reference (SCOR)

Model is a framework for understanding the scope of
SCM based on five basic functions:
1. Plan: Developing a strategy that balances resources
with requirements.
2. Source: Procuring goods and services to meet
planned or actual demand.
3. Make: Transforming goods and services to a
finished state to meet demand.
4. Deliver: Managing orders, transportation, and
distribution to provide the goods and services.
5. Return: Customer returns, maintenance, dealing
with excess goods.
The Supply Chain at Dell

• Purchasing and supplier partnerships:
- Keyboards are sourced in Mexico, soundcards in
France, and power supplies, disk drives, and chips in
Asia.
• Dell pulls component parts into its factories based on
actual customer orders and carries no finished goods
inventory, relying on information technology to drive
its supply chain.
• Sustainability is a key part of Dell’s supply chain:
- Renewable energy use, recycling, and integration of a
sustainability strategy.
The Supply Chain at Dell

• IT Infrastructure using an Oracle database
supports Dell’s supply chain.
• Key modules:
- Configuration management
- Procurement
- Cost Management
- Inventory
- Accounts payable
Designing the Supply Chain

• A contract manufacturer is a firm that specializes
in certain types of goods-producing activities, such as
customized design, manufacturing, assembly, and
packaging, and works under contract for end users.
• Advantages of using contract manufacturing:

- Access to advanced manufacturing technologies
- Faster product time-to-market
- Customization of goods in regional markets
- Lower total costs resulting from economies of
scale

• Efficient supply chains are designed for
efficiency and low cost by minimizing inventory
and maximizing efficiencies in process flow.
Examples: Wal-Mart and Proctor & Gamble.
• Responsive supply chains focus on flexibility

and responsive service and are able to react
quickly to changing market demand and
requirements. Examples: Nordstrom’s and
Apple.

• A push system produces goods in advance of
customer demand using a forecast of sales and
moves them through supply chain to points of
sale where they are stored as finished goods
inventory.
• A pull system produces only what is needed at

upstream stages in the supply chain in response
to customer demand signals from downstream
stages.
Exhibit 9.2 Supply Chain Push-Pull Systems and Boundaries

• Postponement is the process of delaying
product customization until the product is closer
to the customer at the end of the supply chain.
• Example: A manufacturer of dishwashers that
would manufacture the dishwasher without the
door and maintain inventories of doors at the
distribution centers. When orders arrive, the
doors can be attached quickly and the unit can be
shipped. This would reduce inventory
requirements.
Sustainable Supply Chains

• A green sustainable supply chain can be
defined as "the process of using environmentally
friendly inputs and transforming these inputs
through change agents—whose byproducts can
improve or be recycled within the existing
environment.”

Environmental performance-enhancing supply chain
management activities:
• Substantially decreasing scrap, packaging, and material losses.
• Adopting paperless practices for information processing.
• Lowering expenses associated with hazardous materials.
• Increasing revenues by converting wastes to by-products.
• Reducing water and energy requirements.
• Decreasing the use and waste of solvents, paints, cleaning
fluids, and other chemicals.
• Selecting suppliers that support sustainability.
• Recovering valuable materials and assets through efficient
product take-back and recycle programs.
“Our data indicates that upwards

of 60 to 70 percent of a company’s
carbon footprint is found along
their supply chain,”
says Ms. Annie Berger,
Relationships Director of greensupplychain.org.

• Manufactured good recovery:
- Reuse or resell
- Repair
- Refurbish
- Remanufacture
- Cannibalize parts
- Recycle goods
- Incineration or landfill disposal

• Reverse logistics refers to managing the flow
of finished goods, materials, or components that
may be unusable or discarded through the
supply chain from customers toward either
suppliers, distributors or manufacturers for the
purpose of reuse, resale, or disposal.
Exhibit 9.3 Example of a Manufactured Good Recovery (Reverse Logistics)

Supply Chain
Measuring Supply Chain Performance

• Delivery reliability, such as perfect order fulfillment.
• Responsiveness, such as order fulfillment lead time or
perfect delivery fulfillment.
• Customer-related measures focus on the ability of the
supply chain to meet customer wants and needs.
• Supply chain efficiency measures, such as average
inventory value and inventory turnover.
• Sustainability measures, such as water discharge, CO2
emissions, and energy reductions.
• Financial measures, such as total supply chain costs
and costs of processing returns and warranties.
Measuring Supply Chain Performance

• The bullwhip effect results from order
amplification in the supply chain: a
phenomenon that occurs when each member of
a supply chain “orders up” to buffer its own
inventory.
• Many firms counteract this phenomenon by
using common data from the point of the
supply chain closest to the customer, smaller
order sizes, stabilizing price fluctuations, and
sharing information.
Location Decisions in Value Chains

• Location decisions can have a profound effect on
supply chain performance and a firms’
competitive advantage.
• The type of facility and its location affect the
supply chain structure.
• Location decisions in value chains are based on:
- Economic (facility costs, operating costs, and
transportation costs)
- Non-economic (labor availability, legal and political
factors, community environment) factors
Exhibit 9.5 Example Location Factors for Site Selection
Location Decisions in Value Chains

Location Decision Process:
• Global location
• Regional location
• Community location
• Local site location
Center of Gravity Method

• The center of gravity method determines
the X and Y coordinates (location) for a single
facility.
- Takes into account locations, demand, and
transportation costs to arrive at the best
location.
CHAPTER 9 :
SUPPLY CHAIN DESIGN
Solved Problem
Exhibit 9.6 Excel Location Analysis for Fountains Manufacturing Template
Solution: Center of Gravity Calculations
58(400) + 80(300) + 30(200) + 90(100) + 127(300) + 65(100)

Cx = = 76.3
400 + 300 + 200 + 100 + 300 + 100
96(400)+70(300)+120(200)+110(100)+130(300)+40(100)
Cy = = 98.1
400 + 300 + 200 + 100 + 300 + 100
Other Issues in Supply Chain Management

• Selecting transportation services
• Supplier evaluation
• Technology
• Inventory management
Other Issues in Supply Chain Management

• Vendor managed inventory (VMI) is where
the vendor (a consumer goods manufacturer, for
example) monitors and manages the inventory
for the customer (a grocery store, for example).
- Advantages: Optimize production operations,
better control inventory and capacity, and
reduce total supply chain costs and the
bullwhip effect.
- Disadvantages: Often results in higher than
necessary customer inventories.

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SUPPLY CHAIN DESIGN

DAVID A. COLLIER AND JAMES R. EVANS

9-1 Explain the concept of supply chain management.

Understanding Supply Chains

• Key Functions: Purchasing and procurement of

Understanding Supply Chains

• Inventory refers to raw materials, work-in-

Understanding Supply Chains

The Supply Chain Operations Reference (SCOR)

The Supply Chain at Dell

The Supply Chain at Dell

Designing the Supply Chain

• Advantages of using contract manufacturing:

Designing the Supply Chain

• Responsive supply chains focus on flexibility

Designing the Supply Chain

• A pull system produces only what is needed at

Exhibit 9.2 Supply Chain Push-Pull Systems and Boundaries

Designing the Supply Chain

Sustainable Supply Chains

Sustainable Supply Chains

Sustainable Supply Chains

“Our data indicates that upwards

Sustainable Supply Chains

Sustainable Supply Chains

Exhibit 9.3 Example of a Manufactured Good Recovery (Reverse Logistics)

Measuring Supply Chain Performance

Measuring Supply Chain Performance

Location Decisions in Value Chains

Exhibit 9.5 Example Location Factors for Site Selection

Location Decisions in Value Chains

• Local site location

Center of Gravity Method

Solution: Center of Gravity Calculations

58(400) + 80(300) + 30(200) + 90(100) + 127(300) + 65(100)

Other Issues in Supply Chain Management

Other Issues in Supply Chain Management

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