David Simchi-Levi Philip Kaminsky Edith Simchi-Levi
Solutions for Discussion Questions1
1We would like to thank Shiming Deng for his valuable contributions to the preparation of this manual. Chapter 1
Introduction to Supply Chain
Pick any car model manufactured by a domestic auto maker. For example, consider the 2002 Ford Thunderbird.
a. The supply chain for a car typically includes the following components: 1. Suppliers for raw materials
2. Suppliers for parts and subsystems
3. Automobile manufacturer (Ford, in this example). Within a company, there are also different departments, which constitute the internal supply chain: i. Purchasing and material handing
iii. Marketing, etc.
4. Transportation providers
5. Automobile dealers
b. Many Þrms are involved in the supply chain.
1. Raw material suppliers. For instance, suppliers for steel, rubber, plastics, etc. 2. Parts suppliers. For instance, suppliers for engines, steering wheels, seats, and elec- tronic components, etc.
3. Automobile manufacturer. For instance, Ford.
4. Transportation providers. For instance, shippers, trucking companies, railroads, etc. 5. Automobile dealers. For example, Hayward Ford.
c. All companies involved in the supply chain want to maximize their respective proÞts by increasing revenue and decreasing cost. However, companies may employ different 2
strategies in order to achieve this goal. Some of them focus on customer satisfaction and quick delivery, while others may be more concerned about minimizing inventory holding costs.
d. In general, different parts of the supply chain have objectives that are not aligned with each other.
1. Purchasing: Stable order quantities, ßexible delivery lead times and little variation in mix.
2. Manufacturing: Long production runs, high quality, high productivity and low pro- duction costs.
3. Warehousing: Low inventory, reduced transportation costs and quick replenishment capability.
4. Customers: Short order lead times, a large variety of products and low prices. Typically, the automobile dealer would like to offer a variety of car colors and conÞg- urations to accommodate different customer preferences, and meanwhile have a short delivery lead time from the manufacturer. However, in order to maximize the length of production runs, and utilize resources more efficiently, the manufacturer would like to aggregate orders from different dealers and offer less variety in car conÞgurations. This is a clear example of conßicting marketing and manufacturing goals. Question 2
a. The supply chain for a consumer mortgage offered by a bank may involve various com- ponents:
1. Marketing companies that handle solicitation to potential customers. 2. Credit reporting agencies that evaluate potential customers. 3. The bank that extends the mortgage loans.
4. Mortgage brokers through which the loans are distributed. b. The marketing companies strive to increase the response rate from homebuyers in order to maximize their returns. Banks aim at a customer portfolio with a relatively low risk, healthy ßow of payments and low average loan maturity date. The brokers would like to maximize their sales commissions.
c. Similar to product supply chains, the objective of a service supply chain is to provide what is needed (in this case a particular type of service, rather than a physical product) at the right location, at the right time, and in a form that conforms to customer require- ments while minimizing systemwide costs. However, there are a number of differences between the two types of supply chains. For instance:
1. In a product supply chain, there is both a ßow of information and physical products. In a service supply chain, it is primarily information.
2. Contrary to a service supply chain, transportation and inventory are major cost components in a product supply chain.