Supply Chain - Network System Design

The supply chain system

an be viewed as a system of processes that cut across organizations and deliver customer value, rather than as a series of separate organizations and functions.

Business process

a structured set of activities or steps with specified outcomes

processes involve many organizational functions

every process has structural and resource constraints limiting output

Types of inventory

Raw materials (RM)

Work-in-progress (WIP)

Finished goods (FG)

Maintenance, repair, and operations (MRO)

Inventory management

Safety stock, anticipation inventory, cycle stock

Safety stock (Inventory management)

maintained to account for unexpected variations in demand or unforeseen disruptions in supply

Anticipation inventory (Inventory management)

held in expectation of a known future event that will affect either demand or supply

Cycle stock (Inventory management)

kept on hand because of the way specific processes are structured

ABC Analysis of Inventory Management

Differentiates items based on the effort required to manage them versus the benefits derived.

Classifies inventory items into three categories: A,B, and C based on their value of usage

The Pareto Law (ABC Analysis)

20% of the items in inventory account for 80% of the total inventory value

A (ABC Analysis)

Expensive inventory

Accurate control required

B (ABC Analysis)

Moderate value inventory

Moderate control required

C (ABC Analysis)

Low cost inventory

Minimum control required

Theory of Constraints (TOC)

every system has at least one constraint

The objective is to identify the constraint and restructure the organization to eliminate its impact. Find ways to best utilize the constraint

introduced by Goldratt

Bottleneck (System constraint)

A system cannot produce more than its constraining activity

Constraint Management steps

1. Identify the constraint

2. exploit the constraint

3. subordinate all other processes to the decision

4. elevate the constraint

5. when the constraint changes, return to step 1

6. engage in continuous improvement

System variation

output varies

activities vary

equipment and facilities vary

Can be a problem because it consumes resources and/or adds complexity and uncertainty

Process variation

Can be managed in 3 ways:

reducing/eliminating variation

creating buffers to deal with variation

designing more flexibility into the process to respond to the variation

Segmentation

strategy for managing increased supply chain complexity

Segmented supply chains

help manage varying customer requirements in a network

Each segment will result in a different supply chain structure

Factors that affect supply chain network structure

Product type

Product characteristics

number of available suppliers

availability of raw materials

ease of access to customers

Postponement

flexibility without every variant in stock

Customize after demand is known (Delay the final product differentiation until customer preferences are known.

Has 4 types:

Labeling, manufacturing, packaging, time

Postponement has lower...

inventory- fewer finished variants in stock

Postponement has greater...

variety- more customer choices from common inputs

Postponement has less

waste- fewer unsold, obsolete color variants

Labeling (Postponement)

Apply market, or retailer, specific labels later

Ex: Generic electronics

Packaging (Postponement)

Package bulk goods for specific orders

Ex: Customer specific packs

Manufacturing (Postponement)

Complete assembly after the order

Ex: Configure-to-order PC

Time (Postponement)

Hold goods centrally, ship after demand

Ex: Central online retail warehouse

Information Technology Role

enables the linking of processes across the supply chain, enables communication, provides storage, organizes information, improves visibility, and processes data within and between firms

Enterprise Resource Planning (ERP)

A fully integrated computer-based technology used by organizations to manage resources throughout the supply chain.

Consolidates all business processes into an enterprise-wide system that operates in real time, uses a single, centralized database, utilizes a standard format for inputted data, and is comprised of modules for business processes

Enterprise Resource Planning (ERP) Modules

Manufacturing, finance, human resources, supply chain management, project management, and customer relationship management (CRM)

Enterprise Resource Planning (ERP) Components

Inventory, order entry, purchasing, supply chain planning, supplier scheduling, and product inspection

Supply chain strategy

Long-range plan for the system

Supply Chain network design

design of the network structure and business process

Information technology (IT) design

enables data sharing, communication, and process synchronization

6 Decisions in one system

1. Network

2. Inventory

3. TOC

4. Variation

5. Postponement

6. ERP/IT