TOC in Supply Chain ManagementThe Supply ChainShort & Long Duration ChainsComplex CombinationsDedicated ChainCompetitive Link OpportunityIndividual Member of ChainSimple Dist. Chain GameSimple Game ExampleBlack Bean BusinessGeneric Supply Chain ConflictTraditional Supply Chain SolutionTypical Production SolutionDifficulty in ForecastingPotential FutureAdjusting for Product LifeInventory Demand ProbabilityDBR Production SolutionNon-Cooperative Supply ChainReference Supply ChainsCooperative Supply ChainTransfer Costs in Cooperating ChainsIncentive to SwitchCooperative Dedicated SourcesHTTP://WWW.CEA.WSU.EDU/ENGRMGT/TOC in Supply Chain ManagementDr. James R. Holt, PE (Jonah-Jonah)Washington State University14204 NE Salmon Creek AvenueVancouver, WA 98686HTTP://WWW.CEA.WSU.EDU/ENGRMGT/The Supply ChainRaw MaterialsRefine /PrepareProduce TransportDistribute Retail CustomerHTTP://WWW.CEA.WSU.EDU/ENGRMGT/Short & Long Duration ChainsDairyCowsCreamery Deliver RetailCustomerFarmer Cannery Wholesale RetailCustomerHTTP://WWW.CEA.WSU.EDU/ENGRMGT/Complex CombinationsBrakesTiresBumpersUpholsteryEngineTransmissionManuf.CarCar LotCar LotCar LotHTTP://WWW.CEA.WSU.EDU/ENGRMGT/Dedicated ChainMine SmelterRolling MillProductSteel SalesIndependentBusiness UnitIndependentBusiness UnitIndependentBusiness UnitSingle Firm - Totally Owned Industry - Sole SourceTransfer Prices Fixed by PolicyHTTP://WWW.CEA.WSU.EDU/ENGRMGT/Competitive Link OpportunityOil WellRefineryChemicalPlantClothMillDressFactoryCustomerOil WellRefineryChemicalPlantClothMillDressFactoryCustomerOil WellRefineryChemicalPlantClothMillDressFactoryCustomerTransfer Prices at Market PricesHTTP://WWW.CEA.WSU.EDU/ENGRMGT/IndependentBusiness ComponentProcessSupplier ClientTransactions TransactionsPurchaseReceiveCheckPayInternal ProcessingIndividual Member of ChainSellDeliverInvoiceCollectProfit=Sales-Purchase-Inventory Cost-OverheadHTTP://WWW.CEA.WSU.EDU/ENGRMGT/Simple Dist. Chain GameMy Plan for the WeekI Order Parts Parts Come InBeginning Inv. Avail. InventoryThe Actual for the WeekOrders Rec’vdOrders FilledBack OrdersProduct FlowIncome @ $+50BO @ $ -50Cash FlowInv. @ $ -10Remaining Inv.$Weekly Income1.2.3.4.HTTP://WWW.CEA.WSU.EDU/ENGRMGT/Simple Game Example My Plan for the WeekI Order Parts Parts Come InBeginning Inv. Avail. InventoryThe Actual for the Week56511Orders Rec’vd4Orders FilledBack OrdersProduct Flow4Income @ $+50BO @ $ -50Cash Flow2000Inv. @ $ -10-70Remaining Inv.7 $ 130Weekly Income1.2.3.4.HTTP://WWW.CEA.WSU.EDU/ENGRMGT/Black Bean Business@ $ - 5 0@ $ + 5 0@ $ - 1 0M y O r d e r = >( f o r u p s t r e a mm a t e r i a l s )$ 06$$ $ $$I R e c e i v e = >( f r o m u p s t r e a mm a t e r i a l s )P r o d u c t = >A v a i l a b l eI n v e n t o r y = >R e m a i n i n gO r d e r s( f r o m d o w ns t r e a m c l i e n t s )O r d e r sF i l l e dB a c kO r d e r sW e e k l yC a s hF l o wR u n n i n gT o t a lC a s h O nH a n dB e g i n n i n gI n v e n t o r y = >B e g i n n i n gC a s h O nH a n dWeek 1R a w M a t e r i a l M a n u f a c t u r e D i s t r i b u t i o n R e t a i l C u s t o m e rT r a n s p o r t a t i o nB l a c k B e a n B u s i n e s s : A S i m p l i f i e d D i s t r i b u t i o n G a m eM y D i v i s i o n :HTTP://WWW.CEA.WSU.EDU/ENGRMGT/Generic Supply Chain ConflictTo meet customer demands (next link in chain as well as the end customer) I need to keep a significant inventory. But, the cost of inventory deeply erodes my profits. Missing an order erodes my future profits. My forecasts are inaccurate and replenishment takes too long. I’m stuck between a rock and a hard place.We effectively meet our customer requestsSupply Quickly and Avoid Stock Outs (Back Orders)Minimize the Cost of OperationMaintain High Levels of InventoryMaintain Low Levels of InventoryHTTP://WWW.CEA.WSU.EDU/ENGRMGT/Traditional Supply Chain SolutionRaw MaterialsProduce Distribute RetailCustomerHTTP://WWW.CEA.WSU.EDU/ENGRMGT/Typical Production SolutionRaw MaterialsMachine1Machine2Machine3WarehouseHTTP://WWW.CEA.WSU.EDU/ENGRMGT/Difficulty in ForecastingProduct A Demand0204060801 2 3 4 5 6 7 8 9 10DateNumberActual MeanHTTP://WWW.CEA.WSU.EDU/ENGRMGT/Potential FutureProduct A Demand02040608013579111315DateNumberActual MeanHTTP://WWW.CEA.WSU.EDU/ENGRMGT/Adjusting for Product LifeProduct A Demand02040608013579111315DateNumberActual MeanProduct B Demand 02040608013579111315DateNumberActualMeanHTTP://WWW.CEA.WSU.EDU/ENGRMGT/Inventory Demand ProbabilityMean 50Std Dev 1090% SureInventory Level70HTTP://WWW.CEA.WSU.EDU/ENGRMGT/DBR Production SolutionRaw MaterialsConstraintMachineWarehouseConstraint Buffer Protects ReplenishmentShipping Buffer Protects Short Lead DemandLow inventory system is very responsive to customer needs.Low inventory system is product change.HTTP://WWW.CEA.WSU.EDU/ENGRMGT/Non-Cooperative Supply ChainRaw MaterialProduceConstraintTransport DistributeRetailCustomerConstraint ClientSupplyWatch DiligentlyWatch DiligentlyJust-in-Time Production Using DBRHTTP://WWW.CEA.WSU.EDU/ENGRMGT/Reference Supply ChainsSnow River Dam GeneratorPowerlinesCustomerWaterWellWaterTreatmentDistributionWater TowerLocalLinesCustomerHTTP://WWW.CEA.WSU.EDU/ENGRMGT/Cooperative Supply ChainRaw MaterialProduceConstraintTransport DistributeRetailCustomerIn the best world, individual business units cooperate and receive payment only when final customer pays.Inventory is greatly reduced. Quick delivery and response to change is possible.HTTP://WWW.CEA.WSU.EDU/ENGRMGT/ How to…?Start with TwoBeforeConstraint ClientSupplyWatch DiligentlyWatch DiligentlyConstraint ClientSupplyWatch DiligentlyWatch DiligentlyFirm 1Firm 2AfterConstraint ClientSupplyWatch DiligentlyClientSupplyWatch DiligentlyFirm 1Firm 2HTTP://WWW.CEA.WSU.EDU/ENGRMGT/Transfer Costs in Cooperating ChainsCap.40/wkCap.40/wkLabor $10/hourOE $20/hourRM$20TPM$60Sell$100Labor $10/hourOE $20/hourT= $1600Labor=$-400OE= $-800Profit= $400T= $1600Labor=$-400OE= $-800Profit= $400Firm TotalT= $3200Labor=$-800OE= $-1600Profit= $800HTTP://WWW.CEA.WSU.EDU/ENGRMGT/Incentive to SwitchCap.40/wkCap.40/wkLabor $10/hourOE $20/hourRM$2035@$60Sell$100Labor $10/hourOE $20/hourT= $1650Labor=$-400OE= $-800Profit= $450T= $1400Labor=$-400OE= $-800Profit= $200Firm TotalT= $3050Labor=$-800OE= $-1600Profit= $650Market 5ea @$70HTTP://WWW.CEA.WSU.EDU/ENGRMGT/Cooperative Dedicated Sources Cap.40/wkCap.40/wkRM$2035@$60Cap.40/wkRM$20Best Supplier60% of OrdersLesser Supplier40% of