Chapter 10 Operations and Supply Chain Managemet

Universidad Autonoma De Nuevo Leon Facultad de Contaduria Publica y Administracion

Operations Management

Chapter 10: Supply Chain Strategy.

Arturo Alejandro Flores Quiñones 1551427 Group 4Ei Teacher Armando Escamilla

18/04/2016

Supply Chain Strategy Supply chain management is to apply a total systems approach to managing the entire flow of information, materials, and services from raw materials suppliers through factories and warehouses to the end customer. The term supply chain comes from a picture of how organizations are linked together as viewed from a particular company. Many companies are achieving significant competitive advantage by the way they configure and manage their supply chain operations, Dell computer for example, skis the distribution and retail steps typical of a manufacturing company’s supply chain.

Measuring Supply Chain Performance One view of the supply chain is centered on the inventories that are positioned in the system. Two common measures to evaluate supply chain efficiency are inventory turnover and weeksof-supply. These essentially measure the same thing and mathematically are the inverse of one another. Inventory turnover equals cost of goods sold divided by the average aggregate inventory value. The costs of gold are the annual cost for a company to produce the goods or services provided to customers; it is sometimes referred to as the cost of revenue. The average aggregate inventory value is the total value for all items held in inventory for the firm valued at cost. It includes the raw material, work-in-process, finished goods, and the distribution inventory considered owned by the company. In many situations, particularly when distribution inventory is dominant, weeks of supply is the preferred measure. This is a measure of how many weeks’ worth of inventory is in the system at a particular point in time.

Supply Chain Design Strategy The retailer’s orders to the wholesaler display greater variability than the end-customer sales; the wholesaler’s orders to the manufacturer show even more oscillations, and, finally, the manufacturer’s orders to its suppliers are the most volatile. The phenomenon of variability magnification as we move from the customer to the producer in the supply chain is the often referred to as the bullwhip effect. Functional products include the staples that people buy in a wide range of retail outlets, such as grocery stores and gas stations. Because such as products satisfy basic needs, which do not change much over time, they have stable, predictable demand and long life cycles. Innovative products typically have life cycle of just a few months. Imitators quickly erode the competitive advantage that innovative products enjoy, and companies are forced to introduce a steady stream of newer innovations.

Outsourcing Outsourcing is the act of moving some of a firm’s internal activities and decision responsibility to outside providers. The terms of the agreement are established in a contract. Outsourcing goes beyond the more common purchasing and consulting contracts because not only are the activities transferred, but also resources that make the activities occur, including people, facilities, equipment, technology, and other assets, are transferred. The responsibilities for making decisions over certain elements of the activities are transferred as well. Taking complete responsibility for this is a specialty of contract manufacturers such as Flextronics and Solectron. Logistics is a term that refers 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 The logistics interface with procurement and manufacturing, as well as with engineering and marketing, can be greatly enhanced by incorporating a concept known as design for logistics into the early phases of product development. This concept involves consideration of material procurement and distribution costs during the product design phase. Given the heavy emphasis on minimizing inventory and handling in efficient supply chains, how a product is designed and the designed and the design of the components and materials themselves can have a significant impact on the cost to deliver the product. In a particular, product packaging and transportation requirements need to be incorporated into the design process.

Value Density (Value per Unit of Weight) A common and important decision is how an item should be shipped. The way an item is shipped is referred to as the transportation mode. There are five basic modes of transportation: highway, rail, water, pipeline, and air. Each mode has its own advantages and limitations. Although it may seem oversimplified, the value of an item per pound of weight- value density- is an important measure when deciding where items should be stocked geographically and how they should be shipped. The basic methodology of building a spreadsheet that allows the tradeoff to be studied is sound and can be applied no matter what exact details are needed to explore these alternatives.

Global Sourcing Companies that face such diverse sourcing, production, and distribution decisions need to weigh the costs associated with materials, transportation, production, warehousing, and distribution to develop a comprehensive network designed to minimize costs. Of course this network must be designed with consideration of outscoring alternative as described earlier in this chapter.

Mass Costumization The term mass customization has been used to describe the ability of a company to deliver highly customized products and services to different costumers around the world. The key to mass-customizing effectively is postponing the task of differentiating a product for a specific customer until the latest possible point in the supply network. In order to do this, companies must rethink and integrate the designs of their products, the processes used to make and deliver those products, and the configuration of the entire supply network. Buy adopting such a comprenhensive approach, companies can operate at maximum efficiency and quickly meet customers’ orders with a minimum amount of inventory.

Conclusion Supply chain management is important in business today. The term supply chains comes from a picture of how organizations are linked together as viewed from a particular company. Many companies have enjoyed significant success due to unique ways in which they have organized their supply chains. Measures of supply chain efficiency are inventory turnover and weeks of supply. Efficient processes should be used for functional products and responsive processes for innovative important to the operational success of company. Companies that face diverse sourcing, production, and the distribution decisions need to weigh the cost associated with materials, transportation, production, warehousing, and distribution to develop a comprenhensive network designed to minimize costs.

Discussion Questions 1. What recent changes have caused supply chain management to gain importance? Globalization and the new internet era made supply chains expand to new horizons and ideas, creating a big network of supply chains that are interconnected around the globe, so the importance of a lean supply chain these days is an essential thing cause is the motor of the great economies. 2. With so much productive capacity and room for expansion in the United States, why would a company based in the United States chose to purchase items from a foreign firm? Maybe you will have so much capacity at the U.S but the costs are expensive, this concept is called comparative advantage, either make the products here, do it where is cheaper and make what you can do better here to compensate both things, being efficient and making profits. 3. Describe the differences between functional and innovative products A functional product helps to make a simple function, to improve a specifically need, in the other hand a innovative product help solve the need but also improves the efficiency of the product adding new features and options to the customer. 4. What are characteristics of efficient, responsive, risk-hedging, and agile supply chains? Can a supply chain be both efficient and responsive? Risk hedging and agile? The supply chain characteristics vary depending on the industry, and in other hand by their leaders, which decide when and how change the things, but there are 4 types, an efficient supply chain, a risk hedging supply chain, the responsive supply chain and the agile supply chain, this four types vary from company to company depending on the products or their processes but can be combined through the process to become a good strategy. 5. As a supplier. Which factors about a buyer would you consider to be important in setting up a long-term relationship? When setting up a long-term relationship with the customer you have to think about the pricing, the type of customer, the location of their facilities, the past agreements or forecast to study their demand, then also work together with him to improve the relationship through time, in a win-win negotiation both will have advantages to gain a major profit. 6. For the value density problem in example 10.2, what would the effect be if a competing firm offers you a similar service for 10 percent less than Federal Express’s rates. That price would change the products that we can transport by air, giving us more options to transport it without losing much money and gaining time to keep producing our items, I think that would be a comparative advantage to the company. 7. What are the advantages of using the postponement strategy?

Is the term used to describe the delay of the process step that differentiates the product to as late in the supply chain as possible, as the process aren’t very important to the final process. 8. Describe how outsourcing works. Why would a firm want to outsource? Is the act of moving some of moving some of a firm’s internal activities and decision responsibility to outside providers, the terms of agreement are prestablished in a contract, a firm will want to outsource to start a venture in another country, to train the new employees, or just to move on to another culture without loose the brand style. 9. What is so different about Li & Fung’s approach to working with their customers? Would this approach work with functional products like toothpaste and basketballs? The manners to work with their customers are very impressive, helping them earn a lot of benefits from them and also giving them the trust to maintain the flow of raw materials, products, machinery, helping the business grow in big numbers and innovating, this would work in another products only if the principles are well concerned, giving the exact amount of importance to the small thing to the bigh things to make the business grow in a good way. 10. What are the basic building blocks of an effective mass customization program? What kind of companywide cooperation is required for a successful mass customization program? The key to mass-customizing effectively is postponing the task of differentiating a product for a specific customer until the latest possible point in the supply network, companies must rethink and integrate the designs, that together form the basic building blocks that are: A product should be designed so it consists of independent modules that can be assembled into different dorms of the product easily and inexpensively. Manufacturing and service processes should be designed so that they consist of independent modules that can be moved or rearranged easily to support different distribution network designs. The supply network should be designed to provide two capabilities, first it must be able to supply the basic product to the facilities performing the customization in a cost-effective manner, second it must have the flexibility and the responsiveness to take individual customer’s orders and deliver the finished, customized good quickly.