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Chapter 11: Supply Chain Management
Supply Chain – sequence of organizations – their facilities and activities – that are involved in producing and delivering a product Supply Chain Management – collaboration and coordination of all components of the supply chain so that market demand is met as efficiently and effectively as possible Outsourcing – buying goods or services instead of producing or providing them in-house Factors that have made it desirable for organizations to actively manage their supply chains: 1. The need to improve operations

2. Increasing level of outsourcing
3. Increasing globalization
4. Increasing e-commerce
5. The need to manage inventories across the supply chain
Bullwhip Effect – demand variability is progressively larger moving backward through a supply chain Supply Chain Activities
a) Strategic (Design) Activities
- long-term impacts on a supply chain
- goals and competitive characteristics such as quality, cost, variety (flexibility), timeliness (speed), customer service, and fill rate (% of demand filled from stock on hand) should be determined by the members of the supply chain - products will be designed with these competitive characteristics in mind - this involves determining the number, location, capacity, and process types of the facilities b) Tactical (Planning) / Operational Activities

- production planning and control, including forecasting, purchasing, transportation of material, inventory control/warehousing, and scheduling of production and distribution/deliveries, movement of products (replenishment), and customer service One important tactical/operational decision is where in the supply chain the inventory should be held: 1. Value of inventory increases as materials move down the supply chain toward the consumers 2. The nature of inventory becomes more specific as inventory moves down the supply chain Risk Pooling – holding safety stocks in one central location rather than in multiple locations Delayed Differentiation/Postponement – waiting until late in the process to add differentiating features to standard components and products

Logistics – the movement and warehousing of materials/products and information, both within the production facility and outside Example of movement of parts in a batch manufacturing facility: 1. Incoming vehicles to receiving

2. Receiving to storage
3. Storage to the point of use (a work centre)
4. From one work centre to the next or to temporary storage 5. Last operation to final storage
6. Final storage to packaging/shipping
7. Shipping to outgoing vehicles
Traffic Management – overseeing the delivery of incoming and outgoing goods Modes of Transportation – the equipment used for delivery, including ships, trains, trucks, and airplanes

Selecting a Transportation Mode
- must make a choice between slower and less expensive, or faster and more expensive transportation The in-transit holding cost incurred by an alternative is calculated as: In-transit Holding Cost = H(d)_where H = annual holding cost of items being transported

365 d = duration of transport (in days) Ex. Determine which delivery alternative, one day or three days, is best when the holding cost of the item is $1,000 per year, the one-day delivery transportation cost is $40, and the three-day delivery cost is: a) $35b) $30

H = $1,000 per year
Total cost of 1-day delivery = $40 + $1000(1/365)
Total cost of delivery:Total cost of delivery:
a) = $35 + $1000(3/365) b) = $30 + $1000(3/365) = $43.22 > $42.74 = $38.22 < $42.74 Therefore, 1-day delivery is cheaperTherefore, 3-day delivery is cheaper

Ex. Determine which delivery alternative, one day or three days, is best when the holding cost of the item is $1,000 per year, the one-day delivery transportation cost is $40, and the three-day delivery cost is: a)...
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