Slide 1Chapter 10Slide 3What is a Supply Chain?What is Supply Chain Management?Formulas for Measuring Supply-Chain PerformanceExample of Measuring Supply-Chain PerformanceExample of Measuring Supply-Chain Performance (Continued)Bullwhip EffectHau Lee’s Concepts of Supply Chain ManagementHau Lee’s SC Uncertainty FrameworkWhat is Outsourcing?Reasons to OutsourceValue DensitySourcing/Purchasing-System Design MatrixMass CustomizationQuestion BowlSlide 18Slide 19Slide 20Slide 21Slide 22Slide 23Slide 24Slide 25McGraw-Hill/IrwinCopyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 10Supply Chain Strategy•Supply-Chain Management•Measuring Supply-Chain Performance•Bullwhip Effect•Outsourcing•Value Density•Mass CustomizationOBJECTIVES 10-3•Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked togetherWhat is a Supply Chain?10-4What is Supply Chain Management?•Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer10-5Formulas for Measuring Supply-Chain Performance•One of the most commonly used measures in all of operations management is “Inventory Turnover”•In situations where distribution inventory is dominant, “Weeks of Supply” is preferred and measures how many weeks’ worth of inventory is in the system at a particular time valueinventory aggregate Averagesold goods ofCost turnoverInventory valueinventory aggregate Averagesold goods ofCost turnoverInventory  weeks52 sold goods ofCost valueinventory aggregate Averagesupply of Weeks weeks52 sold goods ofCost valueinventory aggregate Averagesupply of Weeks10-6Example of Measuring Supply-Chain PerformanceSuppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million. This company normally has an inventory turn ratio of 10. What is this year’s Inventory Turnover ratio? What does it mean?Suppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million. This company normally has an inventory turn ratio of 10. What is this year’s Inventory Turnover ratio? What does it mean?10-7Example of Measuring Supply-Chain Performance (Continued) = $160/$35 = 4.57Since the company’s normal inventory turnover ration is 10, a drop to 4.57 means that the inventory is not turning over as quickly as it had in the past. Without knowing the industry average of turns for this company it is not possible to comment on how they are competitively doing in the industry, but they now have more inventory relative to their cost of goods sold than before. = $160/$35 = 4.57Since the company’s normal inventory turnover ration is 10, a drop to 4.57 means that the inventory is not turning over as quickly as it had in the past. Without knowing the industry average of turns for this company it is not possible to comment on how they are competitively doing in the industry, but they now have more inventory relative to their cost of goods sold than before.valueinventory aggregate Averagesold goods ofCost turnoverInventory valueinventory aggregate Averagesold goods ofCost turnoverInventory 10-8Bullwhip Effect Order QuantityTimeRetailer’s OrdersOrder QuantityTimeWholesaler’s OrdersOrder QuantityTimeManufacturer’s OrdersThe magnification of variability in orders in the supply-chainThe magnification of variability in orders in the supply-chainA lot of retailers each with little variability in their orders….A lot of retailers each with little variability in their orders….…can lead to greater variability for a fewer number of wholesalers, and……can lead to greater variability for a fewer number of wholesalers, and……can lead to even greater variability for a single manufacturer. …can lead to even greater variability for a single manufacturer. 10-9Hau Lee’s Concepts of Supply Chain Management•Hau Lee’s approach to supply chain (SC) is one of aligning SC’s with the uncertainties revolving around the supply process side of the SC•A stable supply process has mature technologies and an evolving supply process has rapidly changing technologies•Types of SC’s–Efficient SC’s–Risk-Hedging SC’s–Responsive SC’s–Agile SC’s10-10Hau Lee’s SC Uncertainty FrameworkDemand UncertaintyLow (Functional products)High (Innovative products)Efficient SCEx.: GroceryResponsive SCEx.: ComputersRisk-Hedging SCEx.: Hydro-electric powerAgile SCEx.: TelecomLow(Stable Process)High(Evolving Process)SupplyUncertainty10-11What is Outsourcing?Outsourcing is defined as the act of moving a firm’s internal activities and decision responsibility to outside providers10-12Reasons to Outsource•Organizationally-driven•Improvement-driven•Financially-driven•Revenue-driven•Cost-driven•Employee-driven10-13Value Density•Value density is defined as the value of an item per pound of weight•It is used as an important measure when deciding where items should be stocked geographically and how they should be shipped10-14Sourcing/Purchasing-SystemDesign Matrix10-15Mass Customization•Mass customization is a term used to describe the ability of a company to deliver highly customized products and services to different customers•The key to mass customization is effectively postponing the tasks of differentiating a product for a specific customer until the latest possible point in the supply-chain network10-16Question BowlA typical supply chain would include which of the following?a. Suppliersb. Manufacturersc. Distributiond. All of the abovee. None of the aboveAnswer: d. All of the above10-17Question Bowl The supply chain measure of “Inventory Turnover” is which of the following ratios?a. Avg. inventory value/total costsb. Costs of goods sold/Avg. aggregate inventory valuec. Total costs of goods/Avg. costs of goodsd. Weeks worth of inventory/No. of weekse. None of the aboveAnswer: b. Costs of goods sold/Avg. aggregate inventory value 10-18Question BowlIf the “cost of goods sold” for a company is