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Chapter 9 Supply Chain Design• Value (Supply) Chain Purpose:
The basic purpose of a supply chain is to coordinate the flow of materials, services, and information along the elements of the supply chain to maximize customer value.
• U.S. Economy: $1.1 trillion in inventory ($400 billion at retail, $290 billion at wholesale, and $450 at manufacturers) for sales of $3.2 trillion.
• Supply chain management is the management of all activities that facilitate the fulfillment of a customer order for a manufactured good to achieve satisfiedcustomers at a reasonable cost.
• Therefore, in 2003, Dell's cash-to-cash conversion cycle is C2C = 3.8 days + 26.8 days – 61.8 days = - 31.2 days.
• The negative value means that Dell receives customers’ payments (accounts receivable) 31.2 days, on average, before Dell has to pay its suppliers (accounts payable).
• This means that Dell's value chain is a self-funding cash model!
• 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 modifying the supply chain infrastructure and operational processes.
The Bullwhip Effect (continued)• The time lags associated with
information and material flow cause a mismatch between actual customer demand and the supply chain’s ability to satisfy that demand as each component of the supply chain seeks to manage its operations from its own perspective.
Chapter 9 Supply Chain DesignDesigning the Supply Chain• 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.
Chapter 9 Supply Chain DesignDesigning the Supply Chain• Postponement is the process of delaying
product customization until the product is closer to the customer at the end of the supply chain.
• An example is 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 quickly attached and the unit can be shipped. This would reduce inventory requirements.
Chapter 9 Supply Chain DesignDesigning 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.
• Some of the major global contract manufacturers are Flextronics International Ltd., Solectron, Jabil Circuit, Hon Hai Precision Industrial, Celestica Inc., and Sanmina-SCI Corporation.
Designing the Supply Chain• Outsourcing to contract
manufacturers can offer significant competitive advantages, such as access to advanced manufacturing technologies, faster product time-to-market, customization of goods in regional markets, and lower total costs resulting from economies of scale.
Chapter 9 Supply Chain DesignLocation Scoring Model• Scoring model consists of a list
of major location criteria, each of which is partitioned into several levels, and an assigned score to each level that reflects its relative importance.
• Model assumes that each factor is equal in importance, however weights can be placed on each score to provide differentiation.
Chapter 9 Supply Chain DesignSelecting Technology• Selecting the appropriate technology
is critical for both planning and design of supply chains as well as execution.
• Electronic data interchange and Internet links streamline information flow between customers and suppliers and increase the velocity of supply chains.
Chapter 9 Solved Problem #1Evaluate the cash-to-cash conversion cycle for a company that has sales of $3.5 million, Cost of Goods Sold equal to $2.8 million, 250 operating days a year, total average on hand inventory of $460,000, accounts receivable equal to $625,000, and accounts payable of $900,100. What can you conclude about the company’s operating practices? SolutionUsing Equations 9.1 to 9.7 we computed the following:
CGS/D=Cost of goods sold value = $2,800,000 = $11,200/day Operating days per year
250
R/D = Total revenue (sales) = $3,500,000 = $14,000 per day Operating days per year 250
The firm receives the customer's payments (accounts receivable), on average, 21.4 days "after" it must pay its bills to suppliers (accounts payable).
If by improving inventory and/or accounts receivable systems and practices, the firm can shorten the 85.7 days to 64.3 days, theoretically it should not have to borrow funds to support its inventory levels.
All of these numbers should be compared to industry and competitor performance standards.
Chapter 9 Solved Problem #3An automobile dealership in a large city had four locations spread around the Standard Metropolitan Area some as far as 60 miles apart. Each location had a dealership showroom, maintenance and repair service with a parts stockroom, and used and new vehicle lots. The coordinates in miles on an X-Y grid of each city location are shown below with the number of major parts sold each month as the third coordinate. That is, Paris (20,50, 34) is X-axis = 20 miles, Y- axis = 50 miles, and 34 parts are sold per month.
SolutionTo minimize the weighted distance among the four user locations the center-of-gravity method gives X coordinate = 60.3 miles and Y-coordinate = 45.8 miles. This location is a good place to start the search for property to locate a warehouse. In fact, these ideal coordinates (60.3, 45.8) are very close to the Hickory location (60, 40) so consideration should be given to add a central warehouse on this property if space is available.