Supply Chain Exam #1

Supply Chain Management

• Encompasses the planning and management of all activities involved in sourcing/procurement, conversion, and all logistics management activities - including coordination and collaboration with channel partners (suppliers, intermediaries, third-party service providers, and customers)

• The “glue” that connects the different parts of the organization to control expenses, boost sales, and maximize profits

• The art and science of integrating the flows of products, information, financials, and people through the entire supply pipeline - from the supplier’s supplier to the customer’s customer

Chain Structure

Suppliers → Manufacturers → Wholesalers/Distributors → Retailers/Customers

The 7 Rights (7 R’s) of Supply Chain

1. The right product

2. The right amount/quantity

3. The right condition

4. The right place

5. The right time

6. The right customer/person

7. The right cost/price

Four Two-Way Flows

The things moving back and forth through a supply chain

1. Product/Service

2. Information

3. Cash/Payment

4. People

Globalization Benefits (Micro)

• Lower prices

• Wider availability of goods/services

• New employment opportunities

Globalization Challenges (Micro)

• Increased complexity

• Shorter product life cycles

• New forms of competition

Why Supply Chain Management Matters Today - Key Challenges

1. Population growth - more of everything needs to be sourced, produced, and distributed

2. Urbanization

3. Land and resources

4. Technology and information

5. Globalization

Levels of Strategic Planning

• Corporate Strategy

• Strategic Business Unit (SBU)

• Functional/Operational

Corporate Strategy (Strategic Planning Level)

Overall mission: Target businesses, acquisitions/diversitures, values, performance metrics, risk management

• Long-term

• What business should we be in?

Strategic Business Unit (SBU) - Tactical (Strategic Planning Level)

Semi-independent unit; identifies customer/market segments and competitive priorities; constrained by corporate strategy

• Shorter-term

• More detailed

• How should our business unit compete?

Functional/Operational (Strategic Planning Level)

• Demands, materials, and capacities at product level

• Shortest-term

• What do we specifically have to do to support corporate/SBU strategy?

SWOT Analysis

Strengths and weaknesses (internal)

Opportunities and threats (external)

• Used at SBU level to build strategy

3 Key Factors of Developing a Supply Chain Strategy

1. Critical/Key Customer: Critical to the firm’s success and receives the firm’s focus

2. Value Proposition: The tangible and intangible benefits customers expect from the firm

3. Capabilities: What a firm does well; defines the types of problems a firm can proficiently address

Order Winners

Why customers choose a firm

Order Qualifiers

Minimum standards that must be met

Order Losers

Why customers avoid a firm

Value Proposition Characteristics (Well-Designed)

• Features customers value and will pay for

• Differentiates from competitors (hard to imitate)

• Satisfies financial and strategic objectives

• Reliably delivered via firm’s capabilities/supply chain

• Consistent with firm’s social/core values

Product-Related Competitive Priorities

1. Quality

• Fitness for consumption

• Dimensions: Performance, features, conformance, reliability, durability, aesthetics, service/support, perceived quality

2. Timeliness

• Reliability, speed, and availability

• Lead time: Time from begin to end of activities

• Time to market: Total time to conceive, design, test, produce, and deliver a product

• Order-to-delivery: Time from order placement to receipt

3. Cost

• Purchase, transaction, maintenance/repair, operating, salvage/disposal

Process-Related Competitive Priorities

• Innovation: Radical/incremental change

• Flexibility: Ability to respond to changes in products/processes/competitive environment

• Sustainability: Operations that are profitable AND non-damaging to society/environment

  • Triple bottom line

  • ESG

• Risk Management: Anticipating/dealing with unexpected events

  • Natural disasters, social factors, economic issues, tech issues, safety/security, cyber security (ransomware, IoT/big data risk)

Triple Bottom Line

Profit, people, planet

ESG (Environmental Social Governance)

Standards for socially conscious investors

Supply Chain Strategy Development

• What is done over time, not what us written down as plans

• Strategy = Execution + Feedback/Measurement

On-Shelf In-Stock %

% of time a product is available on the shelf

Total Supply Chain Cost

Sum of costs across all firms in a chain

Supply Chain Response Time

Time to recognize a demand shift, internalize it, replan, and adjust output

Cash-to-Cash Conversion Time

Time to convert a dollar spent on inventory into a dollar of sales revenue

Inventory Days of Supply

Calendar days of sales available based on recent activity

Dwell Time

Ratio of days inventory sits idle to days productively used/positioned

Strategic Profit Model (SPM)

• Reveals how income statement and balance sheet data are interrealted

• Shows how operational changes effect overall business performance

• Converts operational changes into financial impacts

• Main focal point: Return on assets (ROA)

Balanced Scorecard

• Creates a cycle of planning → action → assessment → feedback

• Prevents tunnel vision

• All metrics center around the firm’s vision and strategy, keeping all functions aligned to common goals

Process

• A system of structured activities that use resources to turn inputs into valuable outputs

• Process thinking helps managers design, document, manage, and change business processes, and helps avoid the “functional silo” mentality to manage the entire cross-departmental process

Functional Silo Mentality

Departments operate in isolation, optimizing their own goals instead of collaborating across the organization - creating friction instead of smooth flow.

Juran’s Law

• ~15% of operational problems are due to human error; 85% are due to systematic process errors

• Fix the process first, not the person

Pareto Principle

• 80/20 rule

• 80% off effects come from 20% of causes

• Ex: 80% of sales come from 20% of products

Anatomy of a Process

Activities - 5 Categories (Anatomy of a Process)

• Operations - change/transform inputs

• Transportation - moves input place to place

• Inspection - verifies results of an activity

• Delay - unintentionally stops flow

• Storage - formal inventorying of an input

Inputs, Outputs, and Flows (Anatomy of a Process)

Flows are informational or material

Process Structure (Anatomy of a Process)

How inputs, activities, and outputs are physically organized; structure limits process capabilities

Management Policies (Anatomy of a Process)

Decisions on revenue, quality, cost, eliminating non-value adding activities, and wait time

Capacity

The amount of output a process can produce given available inputs/resources

Maximum (Design) Capacity

Highest achievable level of output under ideal conditions for a limited time

Effective Capacity

Achievable level of output under normal conditions for an extended time

• The main driver for capacity planning

Utilization

How much available capacity is actually used (actual vs. planned) as a %

Yield

Useable output from input (% non-defective)

Managing Capacity Strategies

• Time flexibility from workforce

  • Seasonal workforce

  • Subcontracting/outsourcing

  • Dual facilities/shared resources

  • Flexible design configurations

• Shift customer demand:

  • Vary pricing - off-peak discounts

  • Advertising/Promotion

  • Offer peripheral goods/services during slack periods

Economies of Scale

• As output grows, fixed costs spread over more units → lower cost/unit

• Volume discounts from suppliers and learning curve effect (the more you do something the better you get at it)

• Diseconomies of scale: beyond some point, costs can increase per unit

Theory of Constraints

1. Every process has a constraint (bottleneck)

2. Variance consumes capacity

3. Processes must be managed as systems

4. Process measures are crucial to success

5. Every process must continually improve

Bottleneck

Any place demand is greater than or equal to capacity; limits the process’ ability to generate output; defines the maximum capacity of a system

Serial/Sequential Structure

Activities occur one after another → slowest step is the bottleneck

Parallel Structure

Capacity = Sum of the individual parallel resource’s capacities

Measures of Process Flow

• Cycle time

• Flow time

• Little’s law

Cycle Time

Strictly the processing time of one unit

Flow Time

Cycle time + wait time

Total time for one unit to get through the entire process

Little’s Law

Flow time = Inventory level / throughput rate

Sources of Variability

• Inputs: quality/delivery → blocking/starving, downtime

• Processes: quality variance, resource availability, speed → rework/scrap

• Outputs: product variety → changeovers; variable schedules/batching → moving bottlenecks

Processes Managed As Systems

Process elements are interdependent (activities, inputs, outputs, flows, structure, management, and policies) - changing one can unexpectedly affect others

Effective Metrics

• Verifiable/Quantifiable

• Aligned with standards/rewards

• Support strategy

• Enable monitoring, control, and improvement

Continuous Improvement - Kaizen

Incremental, team-based, short-term, action-oriented, repetitive improvement

small + small + small + … = LARGE

Critical Process Types To Focus Improvement On

• Bottleneck (limits output; increases lead time; affects cost, quality, and flexibility)

• Visibility (affects customers’ view of the firm)

• Core Capability (hard to copy strategic skill; must be guarded/improved)

• Feeder Process (feeds multiple downstream processes; a problem cascades)

• Greatest Variance (variance amplifies through sequential steps)

• Most Resources Consumed (biggest “bang for buck” when improved)

Product-Process Matrix

Project - Product-Process Type

• Very low volume

• Very high variety

• Ex: Custom home, wedding planning

• Unique

• Activities sometimes outsourced to specialists

Job Shop - Product-Process Type

• Low volume

• High variety

• Ex: Auto repair shop, beauty salon

• High WIP inventory

• Very skilled workers

Batch - Product-Process Type

• Moderate volume

• Moderate variety

• Ex: Bakery, cinema

• Set up time can be high

• Moderately flexible workers and equipment

• Economies of scale

Repetitive Process - Product-Process Type

• High volume

• Low variety

• Ex: Appliances, buffet resturaunts

• Standard methods and materials

• Low skilled workers

Continuous Process - Product-Process Type

• Very high colume

• Very low variety

• Ex: Gasoline, laundry detergent

• Follow sequence

• Operations often run 24/7

• Line stoppages are very costly

• Highly specialized equipment

• Low skilled operators

Mass Customization - Product-Process Type

Products assembled from standard modules; configuration postponed until order is received

• Cost advantages of high volume production while increasing variety

Cellular Manufacturing - Product-Process Type

Products with similar process characteristics made on small assembly lines (“cells”) to increase flexibility

• Low volume and low variety

Engineer-to-Order (ETO)

• Designed for individual customers

• Long lead time

• High customization

Make-to-Order (MTO)

• Meets broad customer group needs

• Some customization during production

Assemble-to-Order (ATO)

• Standardized modules assembled differently

• Configurable to individual needs

Make-to-Stock (MTS)

• Finished goods held in inventory

• Immediately available

• Least customized

Service Blueprinting

• Customer Actions

  • Everything customers do during service delivery

• Front Office

  • Employee actions in face-to-face contact with customer

• Back Office

  • Behind-the-scenes employee activity

• Support Processes

  • Activities needed for service delivery, no direct customer contact

• Physical Evidence

  • Tangibles the customer sees or collects

Operations Layouts

• Fixed Position

• Cellular/Functional

• Product

Fixed Position Operations Layout

Product can’t move during production, inputs/resources come to it

Ex: House, bridge, surgery

Cellular/Functional Operations Layout

Workstations grouped by similar processing needs/functions

Ex: Gyms, large retailers

Product Operations Layout

Resources arranged along the regular sequence of activities

Ex: Automotive assembly lines, fast food kitchens

Line Balancing in Product Layouts

1. Determine presedence relationships

2. Calculate take time

• = available production time per day / output needed per day

3. Determine minimum number of workstations

• = total of all task times / takt time

4. Assign tasks to workstations using the longest operating time rule

5. Determine efficiency

•  = sum of all task times / (# of workstations X takt time) X100%

Maximum Capacity Utilization (Calculation)

(Actual output / max capacity) X 100%

Effective Capacity Utilization (Calculation)

(Actual output / effective capacity) X 100%

Yield (Calculation)

(Usable output / total output) X 100%

Precedence Diagram

Take Time (Calculation)

Available production time per day / output needed per day

Minimum # of Workstations (Calculation)

Total of all task times / take time → round up

Indifference Analysis (Calculation)

Total cost 1 = Total cost 2

Solve for volume X

Efficiency - Line Balance (Calculation)

(Sum of task times / ( # of workstations X take time)) X 100%

Push Markets

• Push product to distribution channels

• Make it available at point of purchases

• Suppliers dependent on buyers

Pull Markets

• Customer pulls product through supply chain

• Buyers determine standard for suppliers
  
  

Activities 4 Categories

1. Value-adding: moves item closer to the form or location desired by customer

2. Necessary but no Value-adding: needed but doesn’t directly add value

3. Waste generating: consumes resources without adding value

4. Question mark: not easily categorized, keep asking why to get to root for reason for these activities

Kaizen Cycle

Market Orientation and Order Timing

Service Matrix?