Facilities.

• Role in the supply chain
  • The “where” of the supply chain
  • Manufacturing or storage (warehouses)
• Role in the competitive strategy
  • Economies of scale (efficiency priority)
  • larger number of smaller facilities (responsiveness priority)
• Components of facilities decisions
• Location
  • Centralization (efficiency) vs. decentralization (responsiveness)
  • Other factors to consider (e.g., proximity to customers)
• Capacity (flexibility versus efficiency)
• Manufacturing methodology (product focused versus process focused)
• Warehousing methodology (SKU storage, job lot storage, cross-docking)
• Overall trade-off: Responsiveness versus efficiency.

Inventory

• Inventory exists because of a mismatch between supply and demand
• Source of cost and influence on responsiveness
• Impact on
• Material flow time: time elapsed between when material enters the supply chain to when it exits the supply chain
• If responsiveness is a strategic competitive priority, a firm can locate larger amounts of inventory closer to customers
• If cost is more important, inventory can be reduced to make the firm more efficient
• Trade-off
• Cycle inventory
  • Average amount of inventory used to satisfy demand between shipments
  • Depends on lot size
• Safety inventory
  • Inventory held in case demand exceeds expectations
  • Costs of carrying too much inventory versus cost of losing sales
• Seasonal inventory
  • Inventory built up to counter predictable variability in demand
  • Cost of carrying additional inventory versus cost of flexible production
• Overall trade-off: Responsiveness versus efficiency
  • More inventory: greater responsiveness but greater cost
  • Less inventory: lower cost but lower responsiveness

Transportation

• Moves the product between stages in the supply chain
• Impact on responsiveness and efficiency
• Faster transportation allows greater responsiveness but lower efficiency
• Also affects inventory and facilities
• If responsiveness is a strategic competitive priority, then faster transportation modes can provide greater responsiveness to customers who are willing to pay for it
• Can also use slower transportation modes for customers whose priority is price (cost)

• Can also consider both inventory and transportation to find the right balance

• Mode of transportation:

  • Air, truck, rail, ship, pipeline, electronic transportation
  • Vary in cost, speed, size of shipment, flexibility
• Route and network selection
  • Route: path along which a product is shipped
  • Network: collection of locations and routes
• In-house or outsource
• Overall trade-off: Responsiveness versus efficiency

Information

• The connection between the various stages in the supply chain – allows coordination between stages
• Crucial to daily operation of each stage in a supply chain – e.g., production scheduling, inventory levels
• Allows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off)
• Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain)
• Coordination and information sharing

• Forecasting and aggregate planning

• Enabling technologies

  • EDI
  • Internet
  • ERP systems
  • Supply Chain Management software
• Overall trade-off: Responsiveness versus efficiency

Sourcing

• Set of business processes required to purchase goods and services in a supply chain
• Supplier selection, single vs. multiple suppliers, contract negotiation
• Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain
• In-house vs. outsource decisions- improving efficiency and responsiveness
• In-house versus outsource decisions
• Supplier evaluation and selection
• Procurement process
• Overall trade-off: Increase the supply chain profits