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McGraw-Hill/Irwin
Chapter 10
Supply Chain Strategy
OBJECTIVES
Supply-Chain Management
Measuring Supply-Chain
Performance
Bullwhip Effect
Outsourcing
Value Density
Mass Customization
McGraw-Hill/Irwin
Services
Supply networks
Manufacturing
McGraw-Hill/Irwin
Suppliers
Service support
operations
Local
service
providers
Customers
Inputs
Transformation
Localization
Output
Suppliers
Manufacturing
Distribution
Customers
McGraw-Hill/Irwin
Inventory turnover
Average
Averageaggregate
aggregateinventory
inventoryvalue
value
Average
aggregate
inventory
value
Average
aggregate
inventory
value
52
Weeks
weeks
Weeksof
of supply
supply
52
weeks
Cost
Costof
of goods
goodssold
sold
McGraw-Hill/Irwin
Example of Measuring
Supply-Chain Performance
Suppose
Suppose aa companys
companys new
new annual
annual report
report
claims
claims their
their costs
costs of
of goods
goods sold
sold for
for the
the
year
year is
is $160
$160 million
million and
and their
their total
total average
average
inventory
inventory (production
(production materials
materials ++ work-inwork-inprocess)
process) is
is worth
worth $35
$35 million.
million. This
This
company
company normally
normally has
has an
an inventory
inventory turn
turn
ratio
ratio of
of 10.
10. What
What is
is this
this years
years Inventory
Inventory
Turnover
Turnover ratio?
ratio? What
What does
does itit mean?
mean?
McGraw-Hill/Irwin
==4.57
4.57
Since
Sincethe
thecompanys
companysnormal
normalinventory
inventoryturnover
turnoverration
rationis
is
10,
10,aadrop
dropto
to4.57
4.57means
meansthat
thatthe
theinventory
inventoryis
isnot
not
turning
turningover
overas
asquickly
quicklyas
asitithad
hadin
inthe
thepast.
past. Without
Without
knowing
knowingthe
theindustry
industryaverage
averageof
ofturns
turnsfor
forthis
this
company
companyititis
isnot
notpossible
possibleto
tocomment
commenton
onhow
how they
they
are
arecompetitively
competitivelydoing
doingin
inthe
theindustry,
industry,but
butthey
theynow
now
have
havemore
moreinventory
inventoryrelative
relativeto
totheir
theircost
costof
ofgoods
goods
sold
soldthan
thanbefore.
before.
McGraw-Hill/Irwin
Bullwhip Effect
The
Themagnification
magnificationof
ofvariability
variabilityin
inorders
ordersin
inthe
thesupplysupplychain
chain
Time
AAlot
lotof
of
retailers
retailerseach
each
with
withlittle
little
variability
variabilityin
in
their
theirorders.
orders.
McGraw-Hill/Irwin
Manufacturers Orders
Order
Quantity
Order
Quantity
Wholesalers Orders
Order
Quantity
Retailers Orders
Time
can
canlead
leadto
to
greater
greatervariability
variability
for
foraafewer
fewernumber
number
of
of wholesalers,
wholesalers,
and
and
Time
can
canlead
leadto
to
even
evengreater
greater
variability
variabilityfor
foraa
single
single
manufacturer.
manufacturer.
McGraw-Hill/Irwin
10
Supply
Uncertainty
McGraw-Hill/Irwin
Low
(Stable
Process)
High
(Evolving
Process)
Low (Functional
products)
High (Innovative
products)
Efficient SC
Responsive SC
Ex.: Grocery
Ex.: Computers
Risk-Hedging SC
Agile SC
Ex.: Telecom
11
12
What is Outsourcing?
McGraw-Hill/Irwin
13
Reasons to Outsource
Organizationally-driven
Improvement-driven
Financially-driven
Revenue-driven
Cost-driven
Employee-driven
McGraw-Hill/Irwin
14
Value Density
McGraw-Hill/Irwin
15
Mass Customization
McGraw-Hill/Irwin
16
End of Chapter 10
McGraw-Hill/Irwin