SAT

Supply
Chain
Strategy
November 13, 2021 BSA-1
O
M
&
T
Supply Chain
Q
M - It comes from a picture of how
organizations are linked together as viewed
from a particular company

- the activities required by the organization

to deliver goods or services to the consumer.
A supply chain is a focus on the core
activities within our organization required
to convert raw materials or component
parts through to finished products or
services
III
MEASURING SUPPLY CHAIN
PERFORMANCE
One view of supply chain is centered on the inventories that are positioned in the system

Inventory
  turnover
Inventory Turnover =

weeks of supply
Weeks of Supply =(
COST OF GOODS SOLD
It is the annual cost for a company to produce goods or
services provided to customers; it is sometimes referred to
as cost of revenue. This doesn’t include the selling and
administrative expenses of the company.

AVERAGE AGGREGATE INVENTORY VALUE

It is the total value of all items held in inventory for the firm valued at cost. It
includes the raw materials, work-in-process, finished goods, and
distribution of inventory considered owned by the company.
EXAMPLE:
Dell Computer reported the following information in its 1999 annual report.

Net Revenue (Fiscal year 1999) . . . . . . . . . . . . . . . . .. . .. . . . . . . . . . . . . . . .. $18, 234

Cost of Revenue (fiscal year 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,137
Cost of production materials (fiscal year 1999) . . . . . . . . . . . . . . . . . . .. . . . .. . . 6, 423
Production Materials on hand (25 January 1999) . . . . . . . . . . .. . . . .. . . . . . .. . .. 234
Work-in-process and finished goods on hand ( 25 January 1999) . . . . . . . . . .. . 39
Production materials-days of supply . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . .. 6 days

 
Inventory turnover =

 
Weeks of supply =
SUPPLY CHAIN IV

DESIGN STRATEGY
Establishing Design Common Problem
Marshall Fisher argues that in many cases there are
 A key for companies to adversarial relations between supply chain partners as well as
succeed is to create a dysfunctional industry practices such as reliance on price
supply chain design that is promotions.
extremely efficient,
Bullwhip Effect
innovative, unique and
interesting for the This effect indicates a lack of synchronization
customers’ engagement
and satisfaction. among supply chain members.
V
Campbell Soup’s Continuous
Replenishment Campbell uses that information to
forecast future demand and to
determine which products require
What is it? replenishments based on upper or
lower inventory limits previously
It is a program that typifies what many
established with each supplier.
manufacturers are doing to smooth the
flow of materials through their supply
chain. Advantages for retailers
How does it work? Most retailers figure that the cost carry
Their company establishes an EDI the inventory of a given product for a
links with retailers that offers an year equals to at least 25 percent of
everyday low price that eliminates what they paid for the product.
discounts. And inform the company of
their demand and level of inventories
in their production centers.
 FISHER’S SUPPLY CHAIN FRAMEWORK

Functional products
-It indicates the staples that people buy in a wide
range of retail outlets, such as grocery stores and
gas stations.
- The products that satisfy basic needs; they have
stable, predictable demand, and long-life cycles.

Identifying Functional Products Criteria;

Innovative Products • Product life cycle up to 2 years
- Innovative fashion and technology products • Contribution of margin to of 5% to 20%
• Only 10% to 20% variations
Identifying Functional Products Criteria; • Average forecast error at time of production of
• Short-life cycles only 10%
• Great variety of typical products • Lead time for make-to-order products from 6
months to one year
 HAU LEE SUPPLY CHAIN UNCERTAINTY FRAMEWORK

Stable Supply
- The manufacturing process of and the
underlying technology are mature and the
supply base is well established
- Manufacturing complexity tends to be low
or manageable
- Highly automated
- Long terms supply contracts are
prevalent.

Evolving Supply

• The manufacturing process of and the underlying technology are still

under development and are rapidly changing
• Requires a lot of fine-turning
• Often subject to breakdown and uncertainty yields
 DEMAND AND SUPPLY UNCERTAINTY CHARACTERISTICS

DEMAND SUPPLY

FUNCTIONAL INNOVATIVE STABLE EVOLVING

• Low Demand • High demand • Less breakdowns • Vulnerable to

Uncertainty uncertainty • Stable and higher yields breakdowns
• More predictable • Difficult to forecast • Less quality problems • Variable and lower yields
demand • Variable demand • More supply sources • Potential quality
• Stable demand • Short-selling season • Reliable suppliers problems
• Long product life • High inventory cost • Less process changes • Limited supply sources
• Low inventory cost • High profit margin • Less capacity • Unreliable suppliers
• Low profit margin • High product variety constraints • More process changes
• Low product variety • Low volume • Easier to change over • Potential capacity
• Higher volume • High sock out cost • Flexible constrained
• Low stock out cost • High obsolescence • Dependable lead time • Difficult to change over
• Low obsolescence • Inflexible
VI 4 TYPES OF SUPPLY CHAIN STRATEGIES
( HAU LEE)

Efficient Supply Chains Responsive Supply Chains

• Utilizes strategies aimed at creating the highest • Utilizes strategies aimed at being
cost efficiency. responsive and flexible to the changing
• Non –value added activities are eliminated and diverse needs of customers.
• Scaled economies are pursued • Companies uses build-to-order, and
• Optimization techniques are deployed, mass customization

Risk-Hedging Supply Chains Agile Supply Chains

• Utilizes strategies aimed at • Utilizes strategies aimed at being responsive and flexible
pooling and sharing resources to customer’s needs
• Common in retailing • Combine the strengths of “hedged” and “responsive”
• Have the ability to be responsive to the unpredictable
demands of customers
OUTSOURCING OUTSOURCING is the act of moving some of VII
the firm’s internal activities, decision, and
responsibility to outside providers. The terms
of the agreement are established in contracts.
Outsourcing goes beyond the more common
purchasing and consulting contracts because
not only are the activities are transferred, but
also resources that make the activities occur,
including people, facilities, equipment,
technology, and other assets are transferred.
 REASONS TO OUTSOURCE AND BENEFITS
Organizationally driven reasons
• Enhance effectiveness by focusing on what you do best
• Increase flexibility to meet changing business conditions, demand for products and
services, and technologies.
• Transform the organization
• Increase product and service value, customer satisfaction, and shareholder value
Improvement Driven reasons
• Improve operating performance (increase quality and productivity , shorten cycle
times, and so on)
• Obtain expertise, skills, and technologies that are not otherwise available.
• Improve management and control
• Improve risk management
• Acquire innovative ideas
• Improve credibility and image by associating with superior providers
Financially-Driven Reasons
• Reduce investments in assets an free up these resources for other purposes
• Generate cash by transferring assets to the provider
Revenue-Driven Reasons
• Gain market access and business opportunities through the providers
network
• Accelerate expansion by tapping into the provider’s developed capacity,
processes, and systems
• Expand sales and production capacity during periods when such
expansion can be financed
• Commercially exploit existing skills
Cost-driven Reasons
• Reduce costs through superior provider performance and the provider’s
lower cost structure
• Turn fixed costs into variable cost
Employee-Driven Reasons
• Give employees a stronger career path
• Increase commitment and energy in noncore areas.
Logistics
Logistics is a term referred to the management
functions that support the complete cycle of material
flow; from the purchase and internal control of
production materials
; to the planning and control of work-in-process to the
purchasing, shipping, and distribution of the finished
product.

Design for Logistics

Incorporating this concept could greatly enhance the
logistics interface with procurement and manufacturing,
as well as with engineering and marketing, into the
early phases of product development
It involves consideration of material procurement and
distribution cost during the product design phase.
VIII

Value Density Transportation Mode

A common and important decision is how

an item should be shipped. The way an
item is shipped is referred to as the

(valueperunitweight) transportation mode.

5 basic modes of transportation
1. Highway- items can be delivered to
almost any location in a continent;
usually rates are reasonable
2. Rail- low cost, but transit times are long
and may be subject to variability
3. Water- very high capacity, and very low
cost, but transit time is slow
Value Density 4. Pipeline- highly specialized and limited
to liquids, gases, or solids in a slurry
form
The value of an item per pound or the value density is an 5. Air – fast but most expensive
important measure when deciding where items should be
stocked geographically and how they should be shipped.
 X

Global
S o u rc i n g
Definition
Advantages Disadvantages
Global sourcing is the act of searching
for a domestic or foreign manufacturer
to produce a product. Besides giving Advantages are lower cost and Obstacles may include the lack of
businesses a chance to reduce their higher quality. It offers many government support, unorthodox
manufacturing costs, this strategy possibilities for companies, from laws, and cultural differences. In
offers many other advantages and purchasing the finest cocoa beans addition, companies should
possibilities, ranging from product for producing chocolate to buying exercise extra caution when you
improvement to compliance to
high-quality yet low-cost aluminum are searching for manufacturers
regulations. However, it also comes
with certain risks. from Iceland. that offer low prices.
 XI 3 PRINCIPLES FOR AN EFFECTIVE
MASS CUSTOMIZATION PROGRAM
1. A PRODUCT SHOULD BE DESIGNED SO IT
CONSISTS OF INDEPENDENT MODULES THAT CAN
BE ASSEMBLED INTO DIFFERENT FORMS OF THE
PRODUCT EASILY AND EXPENSIVELY.

2. MANUFACTURING AND SERVICE PROCESSES

MASS SHOULD BE DESIGNED SO THAT THEY CONSIST OF
INDEPENDENT MODULES THAT CAN BE MOVED
OR REARRANGED EASILY TO SUPPORT DIFFERENT
CUSTOMIZATION DISTRIBUTION NETWORK DESIGNS (process
postponement)
The term mass customization is used to describe
3. THE SUPPLY NETWORK- THE POSITIONING OF
the ability of a company to deliver highly customized
INVENTORY AND THE LOCATION, NUMBER, AND
products and services to different customers around STRUCTURE OF SERVICE, MANUFACTURING, AND
the world. The key to mass customizing effectively is DISTRIBUTION FACILITIES- SHOULD BE DESIGNED
postponing the task of differentiating a product for a TO PROVIDE TWO CAPABILITIES; FIRST, IT MUST
specific customer till the latest possible pot in the BE ABLE TO SUPPLY THE BASIC PRODUCT TO THE
supply network. By adopting such a comprehensive FACILITIES PERFORMING THE CUSTOMIZATION IN
approach, companies can operate at maximum A COST-EFFECTIVE MANNER. SECOND, IT MUST
HAVE THE FLEXIBILITY AND THE
efficiency and quickly meet customer’s orders with a
RESPONSIVENESS TO TAKE INDIVIDUAL
minimum amount of inventory. CUSTOMER’S ORDERS AND DELIVER THE
FINISHED, CUSTOMIZED GOOD QUICKLY.
5 SUPPORTING GROUPS’ PART FOR AN EFFECTIVE MASS
CUSTOMIZATION PROGRAM

Research and Development must redesign the product so that it can be

customized at the most efficient point in the supply network.
Marketing must determine the extent to which mass customization is
needed customers’ requirements.

Manufacturing and Distribution must coordinate both the supply and

redesign of materials and situate manufacturing or assembly processes in
the most efficient locations.
Finance must provide activity-based cost information and financial
analysis of the alternatives.