Introduction to Logistics/Supply Chain Management (competitive disadvantage by freight equalization)
Drivers of Supply Chain Performance • Facilities – The physical locations in the supply chain network where product is stored, assembled, or fabricated • Inventory – All raw materials, work in process, and finished goods within a supply chain • Transportation – Moving inventory from point to point in the supply chain Drivers of Supply Chain Performance • Information – Data and analysis concerning facilities, inventory, transportation, costs, prices, and customers throughout the supply chain • Sourcing – Who will perform a particular supply chain activity • Pricing – How much a firm will charge for the goods and services that it makes available in the supply chain 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) Facilities • Components of facilities decisions – Role • Flexible , dedicated, or a combination of the two • Product focus or a functional focus – Location • Where a company will locate its facilities • Centralize/decentralize, macroeconomic factors, quality of workers, cost of workers and facility, availability of infrastructure, proximity to customers, location of other facilities, tax effects Facilities Components of facilities decisions Capacity A facility’s capacity to perform its intended function or functions Excess capacity – responsive, costly Little excess capacity – more efficient, less responsive Facilities Components of facilities decisions Facility-related metrics Capacity Utilization Processing/setup/down/idle time Production cost per unit Quality losses Theoretical flow/cycle time of production Actual average flow/cycle time Facilities • Overall trade -off: Responsiveness versus efficiency – Cost of the number, location, capacity, and type of facilities (efficiency) and the level of responsiveness – Increasing the number of facilities increases facility and inventory costs but decreases transportation costs and reduces response time – Increasing the flexibility or capacity of a facility increases facility costs but decreases inventory costs and response time Overall Trade-Off • Responsiveness versus efficiency – Cost of the number, location, capacity, and type of facilities (efficiency ) – Level of responsiveness – Increasing number of facilities increases facility and inventory costs, decreases transportation costs and reduces response time – Increasing the flexibility or capacity of a facility increases facility costs, decreases inventory costs and response time Inventory Role in the Supply Chain Mismatch between supply and demand Satisfy demand Exploit economies of scale Impacts assets, costs, responsiveness, material flow time Inventory Role in Competitive Strategy Form, location, and quantity of inventory allow a supply chain to range from being very low cost to very responsive Objective is to have right form, location, and quantity of inventory that provides the right level of responsiveness at the lowest possible cost Components of Inventory Decisions Cycle inventory Average amount of inventory used to satisfy demand between shipments Function of lot size decisions Safety inventory Inventory held in case demand exceeds expectations Costs of carrying too much inventory versus cost of losing sales Components of Inventory Decisions Seasonal inventory Inventory built up to counter predictable variability in demand Cost of carrying additional inventory versus cost of flexible production Level of product availability The fraction of demand that is served on time from product held in inventory Trade off between customer service and cost Components of Inventory Decisions Inventory-related metrics Cash-to -cash cycle time Average inventory Inventory turns Products with more than a specified number of days of inventory Average replenishment batch size Components of Inventory Decisions Inventory-related metrics Average safety inventory Seasonal inventory Fill rate Fraction of time out of stock Obsolete inventory Inventory Overall trade -off: Responsiveness versus efficiency Increasing inventory generally makes the supply chain more responsive A higher level of inventory facilitates a reduction in production and transportation costs because of improved economies of scale Inventory holding costs increase Transportation Role in the Supply Chain 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 Transportation Role in the Competitive Strategy Allows a firm to adjust the location of its facilities and inventory to find the right balance between responsiveness and efficiency Components of Transportation Decisions Design of transportation network Modes, locations, and routes Direct or with intermediate consolidation points One or multiple supply or demand points in a single run Transportation Choice of transportation mode Air, truck, rail, sea, and pipeline Information goods via the Internet Different speed, size of shipments, cost of shipping, and flexibility Transportation Transportation-related metrics Average inbound transportation cost Average inbound shipment size Average inbound transportation cost per shipment Average outbound transportation cost Average outbound shipment size Average outbound transportation cost per shipment Fraction transported by mode Transportation Overall trade-off: Responsiveness versus efficiency The cost of transporting a given product (efficiency) and the speed with which that product is transported (responsiveness) Using fast modes of transport raises responsiveness and transportation cost but lowers the inventory holding cost
